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Steel prices remain at their lowest levels. Almost every industrial metal price rose in April as a weaker dollar gave a boost to commodity markets. However, steel prices remained quiet, hanging at record lows.

The monthly raw steels MMI® registered a value of 60 in May, on par with April's value.

Raw Materials Undercutting Scrap

Scrap prices are at their lowest levels and we don't really see anything that could give prices significant momentum on the upside, at least until a bigger supply response is seen.

Why Manufacturers Need to Ditch Purchase Price Variance

Unless we start seeing the dollar depreciate against other currencies, European scrap exports will keep gaining market share, leaving a supply excess for US steelmakers.

Cheaper to Produce

Moreover, although prices seem low, it's still cheaper to make steel still using iron ore than scrap. Pig iron or billet could substitute some scrap as primary raw material in which case, US exporters would sell more in the domestic market, causing US scrap prices to keep falling lower.

Meanwhile, steel imports keep arriving. Since US prices are no longer inflated compared to the rest of the world ,we would imagine steel imports to start slowing down through the remainder of the year. However, Chinese exports could actually increase due to the recent removal of export tariffs.

Either way, steel demand remains weak, particularly in oil and gas tubular markets while the market remains oversupplied. It doesn't seem likely that steel prices will rise significantly higher this year.

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Steel held its price for the first time in seven months, breaking a string of losses that most market observers expected would continue.

The monthly Raw Steels MMI® registered a value of 60 in April, on par with March's value.

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Continuing low prices for iron ore and a generally weak scrap market are causing a deflationary spiral for most grades of steel.

Low Prices, Lower Demand

Steel prices fell sharply during the first quarter and our steel index got a much-needed breather.

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U.S. Steel on Thursday announced more layoffs as it continues to fight lower-priced, surging imports and declining demand in the energy sector, saying it will temporarily idle one of its iron-ore operations in Minnesota, affecting 412 workers.

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The idling of the plant in Keewatin, Minn., which ships to U.S. Steel mills, will take place on May 13 and affects six million tons of iron-ore production capacity, or 27% of U.S. Steel’s overall iron-ore output last year. U.S. Steel said the move is temporary in a statement.

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The steel prices plummet continued this month in the the monthly Raw Steels MMI® and registered a value of 60, a decrease of 11.8% from 68 in February.

In February steel prices fell sharply, not only for semifinished products but scrap prices hit the wall as well. Steel billet fell more than 50% this month for both the spot and 3-month contracts on the London Metal Exchange.

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In January, the global scrap to billet price spread fell to less than $100 a metric ton. This level was unsustainable since melting scrap to make billet is already more expensive than that. For that spread to look more stable scrap prices needed to drop and boy did they ever.

Meanwhile, steel products can't catch a break. According to recent figures released by the American Iron and Steel Institute (AISI), US steel imports rose 33% in January compared with the year before, reaching 3.85 million tons, compared with 2.9 million tons a year earlier. As a result, US producers keep cutting prices to compete with imports.
In February, the four steel products we track in our forecast reports (CRC,HRC,HDG and plate) dove to record lows. The lowest prices seen since 2009.

The flood of cheap Chinese exports that domestic industries in the US, Europe and India have long blamed for lowering domestic prices received real undercutting competition in the last two months from Ruble-deflated Russia. India first sounded the alarm on the cheap Russian imports, then US steelmakers noted how much Severstal and others were undercutting HRC prices here and then, finally, the Russian Federation, itself, considered export taxes on its own companies who are reaping a windfall of exports paid in dollars against production costs paid in rubles.

With economic sanctions battering an already shaky economy it's unlikely that Russian steelmakers' costs will go up unless its Moscow taking its share from them. This low export price situation will likely continue.

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Russian domestic steel prices jumped as domestic producers there continue to seek parity with expanding exports. The government is considering imposing a levy on shipments overseas.

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The price of domestic rebar rose 17% last month, the largest increase among steel products, according to data from Metall Expert Consulting, a research firm with offices in Ukraine and Moscow. Hot-rolled coil climbed as much as 15% in the Russian Federation this month, it said.

“There is a stable demand for Russian steel on the external markets, thus domestic prices are seeking to match export price,” Nikolay Filkevich, project head at Metall Expert, which analyzes the domestic steel market, told Bloomberg News.
Producers are trying to close a price gap that by January had widened to about 4,000 rubles ($58.4) per ton of flat steel after the ruble weakened 48 percent in the past 12 months, according to Metall Expert.

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Spot iron ore slipped to near its weakest level in almost six years, reflecting tepid demand for the commodity in top consumer China, where steel prices have been hit by slower consumption.

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Soft sales have forced more Chinese steel mills to curb production after the Feb. 18-24 Lunar New Year break and hold
back on purchases of the steelmaking raw material, traders told Reuters.

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Cheap imports and falling demand from major consumers such as China have led to a third consecutive week of losses for steel billet.

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Imports rose 33% in January and a strong US dollar and weak Russian ruble mean the trend will continue.

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Severstal and Novolipetsk Steel are paying wages and other costs, including transportation, in devalued rubles while earning dollars or euros for exported steel. That's allowing them to undercut rivals like ArcelorMittal, the world's largest steelmaker, while maintaining profitability.

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"This is fantastic time for the Russian steel industry," Kirill Chuyko, head of equity research as BCS Financial Group told Bloomberg News. "Most of the companies are enjoying the best profitability since the 2007 and 2008 pre-crisis commodity boom due to the ruble's decline."

Even before the ruble's 47% decline last year, the industry was in good health. Output in 2014 reached the highest since the global financial crisis as demand at home was high and started to recover in European export markets. Russia's steelmakers have invested billions in upgrading Soviet-era mills, and the nation produces more than any other country in Europe, one of its main export markets.

Now, the ruble's slide has cut costs for Russian mills by almost half in dollar terms. Making hot rolled coil, a benchmark product, now costs $244 to $250 a metric ton in Russia compared with $405 per ton in Brazil and $434 per ton in China, according to CRU Group, an industry consultant.

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US steelmakers slashed prices in February to cope with a flood of steel imports bolstered by the strong dollar, a move that will pressure their profit margins and reduce costs for buyers of steel, including automakers.

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Imports rose 33% in January compared with the year before, according to figures released Wednesday by the American Iron and Steel Institute, reaching 3.85 million tons, compared with 2.9 million tons a year earlier. The jump in imports comes as oil and gas drillers cancel orders for steel pipe, underscoring the resilience of overall US demand compared with other markets.

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A federal judge last week dismissed Nucor's lawsuit against Big River Steel, saying it couldn't use the court system to bypass Arkansas state regulators who had already given the rival permission to build a new mill in Osceola, Ark.

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US District Judge Leon Holmes ruled the lawsuit by Nucor seeking to halt construction of the Big River Steel mill is not authorized under the citizen lawsuit provision of the federal Clean Air Act. He said his court has no jurisdiction over the case.

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