ArcelorMittal

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This morning in metals news, U.S. imports of steel are up 19.4% through the first 10 months of the year, the European Union’s antitrust watchdog is eyeing ArcelorMittal’s bid to buy Ilva and London copper posted little movement Thursday.

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Steel Import Market Share Hits 26% in October

According to data released by the American Iron and Steel Institute (AISI), for the first 10 months of 2017, total and finished steel imports were 32,841,000 net tons (NT) and 25,375,000 NT, up 19.4% and 15.1%, respectively, from the same period in 2016.

In addition, the estimated finished steel import market share in October was 26% and is 27% for the year to date. 

EU to Look at ArcelorMittal’s Ilva Takeover Bid

The EU’s antitrust watchdog is taking a look at ArcelorMittal’s bid to buy Ilva, amid concerns that the purchase could stifle competition and lead to rising prices, the Associated Press reported.

According to the report, the EU Commission said Wednesday that it fears “the merger may reduce competition for a number of flat carbon steel products.”

London Copper Doesn’t Budge

It was a quiet Thursday for LME copper, as the metal traded just above the previous one-month low, Reuters reported.

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With light volumes, LME copper held at $6,856 a ton by 1:27 GMT, marking a 0.4% gain from the previous session, per the report.

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This morning in metals news, the Kobe Steel saga continues, an Indian steel firm’s stock is up amid acquisition buzz and London copper holds steady.

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Kobe Steel Faces Another Test

The fallout from Kobe Steel’s quality data falsification scandal continues, and according to Reuters there are concerns about the Japanese firm’s outstanding liabilities.

According to the Reuters report, the third-largest Japanese steelmaker has $3.3 billion cash in hand and $7.01 billion in debts as of the end of March.

Bhushan Steel Stock Surges

Indian firm Bhushan Steel saw its stock rise after news of a potential acquisition by ArcelorMittal, according to the Economic Times.

The Indian company’s stock rose 20% Monday amid buzz that ArcelorMittal joined the bidding, according to the report.

Copper Trades Steady

Copper has experienced a significant upward trend in October, rising from $6,518 on Sept. 20 to $7,008 on Oct. 20.

The metal did experience a dip last week, however, falling from $7,061 last Monday to $7,008 on Friday.

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On Monday, copper held steady, according to Reuters, trading at $6,950.

Unlike the steel mergers of the mid-noughties, the mergers currently in the news are born out of weakness, not strength, a recent Financial Times article suggests.

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According to the piece, profitability among the continent’s steelmakers plunged from a peak in the third quarter of 2008 — when each ton shipped delivered on average €215 in earnings before interest, tax, depreciation and amortization — to just €46/tonne in the first quarter of 2016, according to calculations by UBS.

The figure has recovered since to about €83/tonne in the first quarter of 2017, but at the cost of 86,000 job losses since the financial crisis and years of losses contributing to the bankruptcy of the continent’s largest steel production plant, Ilva, in Italy.

Source Financial Times

Despite years of suboptimal capacity utilization, there has been limited rationalization of production continentwide, with governments fiercly opposing job losses in their backyard and steelmakers hoping the other guy will make the cuts. Even Ilva is now being taken over by ArcelorMittal rather than closing completely, and following a major investment will be back in production next year.

Source Financial Times

Although the industry acknowledges Europe will never need as much steel as it once did, ArcelorMittal is quoted as saying the industry is looking to governments to do more to stem imports from Russia and China, and facilitate the planned and phased closure of persistently loss-making plants. Less foreign competition and more consolidation is the agenda in the hope fewer more-consolidated steelmakers can achieve greater clout with buyers in a more constrained market, forcing through higher prices.

Source Financial Times

When ArcelorMittal’s takeover of Ilva is complete, the combined entity will control some 30% of European flat-rolled steel production, up from 26.5% for ArcelorMittal now. While Tata Steel’s proposed and much-delayed merger with ThyssenKrupp’s steel division — currently Europe’s second-largest steel producer — would raise their combined market share for hot-rolled flat products to over 20%.

Steel prices are already up nearly 60% from the bottom in 2015 on the back of improved recovery in steel demand and a gradual increase in anti-dumping legislation restricting some types of steel imports into Europe. Producers would like to see this go a lot further, of course, but consumers are fighting to keep the import market open, fearing — with some justification — that more action will reduce competition and result in significantly higher prices.

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For the first time in years, steelmakers at least seem to have a plan and are actively pursuing it. Whether that plan is to the eventual benefit or detriment of consumers remains to be seen — but a healthier domestic steel industry must certainly be advantageous to all.

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Two significant developments on the steel front took place last week that will ensure that India continued on its chalked-out path of global dominance in steel production.

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Jindal Steel and Power Limited (JSPL) launched its 6 million ton per annum (MTPA) integrated steel plant at Angul in the Odisha province. The plant, one of the biggest in India, was dedicated to the nation on May 27, 2017. Naveen Patnaik, the chief minister of Odisha, said the plant would lead to an addition of 20% of steel to India’s ultimate goal of steel manufacturing capacity of 300 MTPA by 2030.

For JSPL, this was a major milestone, too. According to Chairman Naveen Jindal, the 6 MTPA steel plant at Angul was a major landmark in defining the future growth trajectory of JSPL. The latter is part of US $18 billion diversified O.P. Jindal Group.

Spread over 3,500 acres, JSPL’s integrated steel plant at Angul will provide direct employment opportunities to over 30,000 people and indirect employment to over 100,000 individuals.

JSPL’s capacity addition would further enhance the cost efficiencies of steelmaking — a continuous focus area of JSPL’s business philosophy, adding to its overall plan of debt reduction, said some of its top honchos.

In another development on the steel front, ArcelorMittal, the world’s largest steel producer, said it has agreed to make concessions to Steel Authority of India Ltd (SAIL) to jumpstart a delayed US $897 million automotive joint venture.

ArcelorMittal and SAIL, according to a report by news agency Reuters, had agreed to a proposal to export a fifth of the auto-grade steel they aimed to make as part of the joint venture.

Incidentally, the proposal was one of several made by Indian government think tank NITI Aayog, which is mediating talks on commercial terms for the delayed venture.

At present, a bulk of the high-grade steel used by India’s vehicle industry was imported from countries such as Japan. With this new joint venture all set to take off, reliance on such imported steel would fall drastically, experts say.

The Reuters report quoted a company spokesperson as saying that in the interest of the strategic partnership, some concession from ArcelorMittal on technology had been extended.

Experts believe if the deal does come to fruition, it would help SAIL compete with local rivals, such as JSW Steel and Tata Steel, which have foreign partnerships to make steel for the car industry.

Much to the delight of not only its executives and employees but both the global steel sector and even stock markets, the Luxembourg-based steel giant ArcelorMittal has posted its first annual profit in more than five years, registering the biggest jump in earnings in the same period.

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The world’s largest steelmaker by output swung from a $7.9 billion net loss in 2015 to a net profit of $1.8 billion last year. Read more

Brazilian flat steel producers have notified distributors they are raising prices of hot- and cold-rolled steel between 8 and 10% this month, a steel market source and an analyst told Reuters on Wednesday.

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Cia Siderúrgica Nacional SA, Usinas Siderúrgicas de Minas Gerais SA and the Brazilian unit of ArcelorMittal SA will keep zinc-coated steel prices unchanged, the source said. The price hikes are effective Jan. 1, Jan. 5 and Jan. 10, respectively, the source added.

Vitol Signs First Major Iranian Oil Deal

The world’s largest oil trader, Vitol, has clinched a deal with the National Iranian Oil Co. (NIOC) to loan it an equivalent of $1 billion in euros guaranteed by future exports of refined products, four sources familiar with the matter told Reuters.

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The pre-finance deal is the first such major contract signed between Iran and a trading house since sanctions were lifted in early 2016.

The Environmental Protection Agency‘s Clean Power Plan took another hit this week and ArcelorMittal, the world’s largest steel company, beat expectations with its Q2 filing.

Fifth Circuit Blocks Clean Power Plan ‘Haze Rule’

The Fifth U.S. Circuit Court of Appeals’ recent block of the Environmental Protection Agency‘s regional haze plan for Texas and Oklahoma supports arguments that the agency overstepped its legal authority in crafting the overall Clean Power Plan, states challenging the rule told the D.C. Circuit on Wednesday.

We have extensively covered the clean power plan and its implications for U.S. manufacturers.

ArcelorMittal Beats Q2 Forecasts

ArcelorMittal, the world’s largest producer of steel, on Friday reported a better-than-expected core profit for the second quarter but kept its outlook for the full year unchanged. Core profit almost doubled in the second quarter compared to the same period last year to $1.77 billion, well above the $1.574 billion expected in Reuters poll of eight analysts.

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.

If the European steel industry wasn’t beset with problems of poor profitability and overcapacity before Brexit, it now has a sharply increased element of uncertainty to add into the mix.

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Steel mills across Europe have been criticized for not addressing overcapacity since the financial crisis but if you think closing steel mills in the U.S. is a problem, with states lobbying mills to maintain operations, it is nothing compared to the 28 nation states of the European Union, for whom the continued existence of a national steel industry — each country generally has only one or two champions — is a matter of political survival for many governments.

This steel plant at Port Talbot in South Wales, U.K., could close if Tata Steel can't find a buyer. Even as steel prices increased last week. Source: Adobe Stock/Petert2

Port Talbot in South Wales, U.K., could close if Tata Steel can’t strike a deal and Brexit could make it harder to get one done. Source: Adobe Stock/Petert2

So, for transnational steel producers to moot the possible rationalization of a mill in one country is to invite howls of protest and a political storm. Plus, governments sometimes offer financial support, although, technically, that is against E.U. rules, but ways are often found.

Steel Deals Now in Peril

Tata Steel’s proposed closure or sale of it’s U.K. operations has stuttered along this year with long products being successfully sold to various parties and the major blast furnaces and flat-rolled operations at Port Talbot, South Wales, being circled by a couple of bidders. Read more

One of the world’s biggest steel makers, ArcelorMittal, is at a crossroads. Created by the takeover of Western European steelmaker Arcelor by Indian-owned multinational Mittal Steel in 2006, the Luxembourg-headquartered business has been facing tough times since recently, much of it because of external factors such as collapsing economies, but some of the pain is certainly of its own making.

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ArcelorMittal is at a turning point. It initiated a series of steps which management hopes will turn a corner and help it survive this period of global instability, especially in the  steel sector.

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Cheap imports are hurting ArcelorMittal as much as any steelmaker as almost all of the markets the steel giant operates in are suffering price falls due to the imports.

Shareholders met in Luxembourg and by an overwhelming majority, passed a stock issuance for a capital increase of $3 billion.

Stock Sold to Pay Down Debt

The fundraising is part of an overall plan unveiled in February 4 by ArcelorMittal. For now, though, it has too much debt on its records. At the end of 2015, ArcelorMittal’s total debt was $19.8 billion. The debt rate had reached 57% by December 31, compared to 35% a year ago.

Except for India and China, global steel purchasing — on the national level — is down in the last few years. Cheap Chinese imports are hurting the markets that ArcelorMittal competes in as much as any. If a further market deterioration was to take place, ArcelorMittal would be looking at a bleak future, hence the rush to raise funds and retire debts, some analysts.

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