Ferrous Metals

The Department of Commerce placed preliminary countervailing duties on Turkish steel rebar imports today, the trade case is ongoing.

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Countervailing duties are placed on products found by Commerce to have been injuriously subsidized by foreign governments importing said products into the U.S. The definition of a countervailable subsidy is financial assistance from foreign governments that benefits the production of goods from foreign companies and is limited to specific enterprises or industries, or is contingent either upon export performance or upon the use of domestic goods over imported goods.

Commerce calculated a preliminary subsidy rate of 3.47% for the mandatory respondent Habaş Sinai ve Tibbi Gazlar Istihsal Endüstrisi A.Ş. (Habas).

There  an existing countervailing duty on rebar from the Republic of Turkey (79 Fed. Reg. 65,926 (Dep’t Commerce Nov. 6, 2014). This new countervailing duties investigation on rebar from Turkey covers only rebar produced and/or exported by those companies that are excluded from the 2014 Turkey order. Read more

We warned last month that the mostly small losses the prices our MetalMiner IndX experienced were caused by investors taking profits.

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Our suspicions were confirmed when almost all of our sub-indexes had big price rebounds this month. The Automotive MMI jumped 12.2% Raw Steels 8% and Aluminum 6%. Even our Stainless Steel MMI only dropped 1.7% and has taken off since February 1 as nickel supply is even more in question now with both the Philippines and Indonesia’s raw ore exports in question.

The bull market is on for the entire industrial metals complex. Last month’s pause was necessary for markets to digest gains but the strong positive sentiment for both manufacturing and construction shows no signs of ebbing in the U.S. and Chinese markets.

The American Iron and Steel Institute reported that for the month of December 2016, U.S. steel mills shipped 7,173,245 net tons, a 6.7% increase from the 6,724,277 nt shipped in the previous month, November 2016, and a 9.4% increase from the 6,556,342 nt shipped in December 2015.  Shipments for full year 2016 are 86,533,341 nt – a slight change from shipments of 86,546,657 nt for full year 2015.

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A comparison of December 2016 shipments to the previous month shows the following changes: hot-rolled sheet, up 11%; cold-rolled sheet, up 4%, and hot-dipped galvanized sheet and strip, down 3%.

Manufacturing PMI Hits a 2-year High

The January 2017 Institute for Supply Management Purchasing Managers’ Index and Non-Manufacturing Index, released on February 1 and February 3, respectively, reveal a surging manufacturing sector in the U.S., with slowing growth in the services sector.

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The PMI® jumped 1.5 percentage points to 56.0, its highest level in more than two years. At 56.5, the NMI® declined by one-tenth of a percentage point, indicating slowing growth in the non-manufacturing portion of the economy.

Our Stainless MMI inched lower in January but it’s already working higher in February as nickel prices rebound.

That Other Ban

In mid-January, Indonesia issued significant new mining rules that will relax its ban on exports of raw nickel ore.

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The revisions to the earlier regulation will allow miners to only export low-grade ore (defined as metal content of 1.7% or less) as long as they express a commitment to build their own smelters within five years and are able to supply domestic smelters with enough low-grade ore to meet at least 30% of the country’s input capacity.

Stainless MMI

This distinction between low-grade and high-grade ore (1.7% or more metal content) is important. Lower-grade ore increases the cost base for Chinese nickel pig-iron. In addition, NPI and ferronickel are more energy intensive than the higher grade refined nickel. Therefore, the greater use of lower grade nickel leads to more pollution, an issue that China is currently tackling.

According to Indonesia’s mining minister, Indonesia produces 17 million metric tons of nickel ore per year, of which 10 mmt is low-grade. The country’s nickel smelting capacity is currently 16 mmt and may reach 18 mmt this year.

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As its mining minister puts it, Indonesia may export up to 5.2 mmt of nickel ore a year under the country’s new rules. This is less than 9% of what the country used to export prior to the ban. Although this is important information to take into account, Indonesia’s easing will not flood the global market as many feared.

More Shutdowns In The Philippines

On February second, the Philippines ordered the closure of 21 mines, and seven others could be suspended. The nickel mines recently ordered to shut down account for about 50% of the country’s annual output. Prices rose sharply on the news as the mining shutdowns in the Philippines seem likely to be a to greater driver of price movements than the easing of Indonesia’s export ban.

What This Means For Metal Buyers

If we narrow our view to the supply/demand fundamentals of the nickel industry, the picture looks bullish, but rather complex. However, we need to widen our view to the whole industrial metals spectrum, and that picture looks quite bullish. Industrial metals continue to rise on robust demand and shrinking supply. The bullish sentiment across the metal complex, combined with more nickel mine closures should support prices in the mid-term.

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It can be tempting to lump our Renewables MMI in with the Rare Earths MMI as sub-indexes that rarely move with fairly calm, if lower-priced, markets.

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That might be true of the once-high-flying RE market, but to say that about renewables would be a mistake. Sure, many of the magnets and batteries derived from rare earth elements end up in wind power installations and hybrid/electric cars so there’s a direct relation from end use, but the real difference maker in the renewables market is solar.

An estimated 2% of all new jobs created in 2016 in the U.S. came from the solar industry, according to the Department of Energy. 10% Of those jobs came from non-warm weather climes such as Colorado, too, so regional limitation is essentially over. The solar industry employs more than three times the amount of people as the coal industry, despite the political power of the latter. Solar installations are expected to rise by 29% this year from last. While wind and other renewable technologies have a long road to adoption, the solar industry is largely “there” when it comes to supplying energy directly to homes and businesses with solar silicon photovoltaic panels affixed to them and even directly to modern energy grids.

Aside from those statistics, too, there are market forces at play that make solar adoption a strong investment opportunity. China’s National Energy Administration has revealed its solar power production more than doubled in 2016, hitting 77.42 gigawatts, making China the world’s largest producer of solar energy.

But Jeff, you say, isn’t this just yet another promised tipping point? Haven’t we been promised all of this before? What makes me feel different about these studies is that they are based on jobs, and not adoption numbers alone. You may have noticed that we have a new President who is very eager to develop new American jobs. As much as President Donald Trump might like oil pipelines, coal mines and steel mills, he’ll need solar to create millions of American jobs and to make us all tired of winning so much.

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The DOE report says 187,117 workers are employed at coal, oil, and natural gas power plants compared to nearly 374,000 people in the solar industry. This is somewhat misleading because an array of direct and indirect jobs related to exploration, excavation, construction, and well surveying—still employs millions of people come from fossil fuels such as oil and natural gas exploration and those aren’t counted. Still, the National Solar Jobs Census 2016 documents truly dramatic growth of a the solar industry in less than a decade and that 10% projected increase isn’t something the Trump administration can afford to miss. Workers who install rooftop solar panels make up the largest share employment in the sector at 137,133 jobs.

Increasing installations would be considered the low-hanging fruit of jobs growth. The Renewables MMI was up 2% this month.

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Our Automotive MMI took off in February, surging 12.2% along with strong gains in steel prices and all of the base metals in the automotive index saw gains in the first full month of 2017.

Hot-dipped galvanized steel was a particularly strong performer along with the catalyst metals, palladium and platinum. The tough talk about U.S. automotive production that President Donald Trump started during the campaign has only ramped up since his inauguration. Automakers could have to significantly alter their purchasing and supply chains if a border tax is enacted.

House Republican leaders have proposed what they call a “border-adjusted tax,” which would place a levy on vehicles imported into the U.S. and fully exempt those exported. Though Trump initially deemed the idea too complicated, White House Press Secretary Sean Spicer recently said it was under consideration and could help pay for a wall along the Mexico border.

An overhaul of the U.S. tax system could hand an advantage to Ford Motor Company, Honda America and General Motors, which rely the least on imported vehicles among the major automakers. The shake-up, if it is a border-adjusted tax, would clearly undermine Toyota America, which relies on shipments of RAV4 sport utility vehicles from Canada and Lexus luxury models from Japan, and deliver an even more damaging blow to companies with zero domestic production, including Mazda Motor Corp.

“The border adjustment piece of this is very intriguing for us,” Ford Chief Executive Officer Mark Fields told analysts after posting a $10.4 billion pretax profit for 2016. “The reason for that is we are the largest producer of vehicles here in the U.S. We’re a top exporter.”

About 79% of Ford’s domestic vehicle sales were built at home last year, according to researcher LMC Automotive, second only to the much smaller electric-car maker Tesla Motors. Honda ranks just behind Tesla and Ford, with 68% of its U.S. sales coming from domestic plants, followed by GM with 65%.

If the first weeks of the Trump administration are any indication, though, initial action on a tax plan could happen quickly via executive order and the lengthy process of legislation could be a post-executive order action plan.

January is typically the weakest month of the year for U.S. auto sales, and last month appeared to be no exception. Sales fell 2% to 1.1 million, according to Autodata Corp. Supply chain executives are clearly more worried about supply chains and a possible import tax this month than end-product sales.

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Two global steel giants, India and Japan, are headed toward a trade war. For once, one participant in the trade row isn’t the U.S… not directly, at least.

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Japan, the world’s second-largest producer of steel, has threatened to take India to the World Trade Organization over import restrictions asserted by India. If incoming reports are true, Japan may soon be joined by Taiwan and even Russia.

Despite the excellent trade relations the two nations enjoy, Japan is unhappy with India’s decisions to place a minimum import price and other assorted duties to protect its domestic steel industry. Japan claims this has halved its steel exports to India in the last year.

Working quietly on the sidelines, Indian government officials having been trying to iron out differences with their Japanese counterparts and settle the dispute in consultation but, so far, the sides have not had much luck. According to a news report, India’s Director-General of Safeguards and the Ministry of Steel were assessing points raised by Japan against the calculation of safeguard duties so that they could counter Japan and defend the duties before the WTO. India, obviously, does not want Japan — for that matter any other nation — to escalate this matter into a full-fledged dispute at the WTO.

But why is Japan reacting now, especially since some of the restrictions have been in place in India for almost two years? Analysts say that with U.S. President Donald Trump raising the cry of “America, First,” Japan is now concerned that it could lose a large chunk of its steel export market, and thus, is making an open stand for what it considers free and fair international trade. India is just the proxy country used to fight a larger war against MIPs and other border taxes.

A Japanese industry ministry official, explaining a Dec. 20 request for WTO dispute consultations with India over steel safeguard duties and the MIP for iron and steel products, said it needed to stop unfair trade actions from “spreading.”

India imposed duties of up to 20% on some hot-rolled flat steel products in September 2015, and set a floor price in February 2016 for steel product imports. India’s anti-dumping duty amounts to $474-557 a metric ton on hot-rolled flat products of alloy and non-alloy steel imported from China, Japan, South Korea, Russia, Brazil and Indonesia in August. These nations account for almost 90% of India’s steel imports.

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Russia and Taiwan, too, may join Japan in requesting consultations at the WTO over India’s use of a MIP regime. Proceedings could start as early as February.

The price you pay for your steel pretty much depends on two things:

  1. Prices in China, since they set the floor for international steel prices.
  2. How much of a premium U.S. mills are able to justify over that price.

 

Graphic: Raul de Frutos/MetalMiner.

Prices in China are moved by supply and demand dynamics. We’ve explained in previous posts that overall, things are setting up for Chinese prices to continue to trend higher. While demand has been better than expected, China met its 2016 capacity cuts goal and further cuts are expected to take place this year as the country tackles its pollution issues.

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However, in this post we’ll focus on the premium that U.S. customers pay. This price spread between U.S. and international prices is also very important and could make your purchases more expensive in the coming months.

Spread between HRC US and HRC China. Source: MetalMiner IndX.

Spreads have fallen sharply over the past few months. The spread between U.S. and Chinese hot-rolled coil (HRC) prices is now $97/ton. To put this in context, consider that this spread was $276/ton just seven months ago. Read more

By anyone’s reckoning, iron ore and coking coal had a stellar year in 2016. Driven by infrastructure investment and a robust construction market, Chinese imports of our iron ore could top 1 billion metric tons for the first time in 2016. Prices more than doubled in the space of 12 months and the supply-demand situation seemed to be largely in balance for much of the year.

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After topping $80 per mt in early December, prices eased back a little toward the end of the year prompting many to ask “have we seen the peak in iron ore prices?” Mills typically cut output during the quieter winter months when construction demand slows. Many steel mills have already curbed output due to chronic smog alerts across northern China.

Chinese Demand

Seasonally, it would not be unusual if iron ore prices remained subdued up to the Chinese New Year and then picked up in preparation for the peak production months of late spring and summer. But, while Chinese demand defied many expectations of a slowdown in 2016, the recent softening of both iron ore and coking coal raw material prices, and the price of some finished steel products over the last week or 10 days, has lent support to some analysts’ predictions that we could be seeing markedly lower Iron ore prices throughout this year and next. Read more

What will 2017 bring for the steel industry?

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

At the beginning of the year, it’s always fun to look forward and pick out some of the themes for the year. 2016 was certainly volatile as hot-rolled coil pricing went from $360 a ton to $600/ton, then back to the low $400s/ton before recovering to $600/ton. Phew! Read more