Ferrous Metals

Kevin Dempsey, AISI.

MetalMiner Managing Editor Taras Berezowsky recently sat down with Kevin Dempsey, Senior VP for public policy at the American Iron & Steel Institute. Dempsey leads the AISI public policy team representing the interests of North American steel producers and also serves as General Counsel to the Institute. Before that he was a practicing attorney who specialized in trade matters.

During his years on Capitol Hill and in the private sector, Dempsey has worked extensively on international trade negotiations, including the Doha Development Agenda and the original negotiations on the accession of China to the World Trade Organization. He also has considerable experience with U.S. and international law related to subsidies, trade remedies, market access, intellectual property rights, and product standards, as well as U.S. legislative procedures for authorizing and implementing trade agreements.

This is part two of their discussion. Read part one for more on the U.S., China, steel and trade matters. Today’s piece examines the role of international diplomacy and even the WTO.

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Taras Berezowsky: If you could pick one of those big issues or pieces of control what would be the biggest one as far as AISI and the whole industry domestically is concerned about? Is there one pet issue that trickles down to everything else?

Kevin Dempsey: Well, for steel I think you have to say if you’re in the steel industry the biggest issue is Chinese state ownership and control of its steel industry.

Because that is at the heart of the distortions that we see in our sector in terms of the massive overcapacity of steel in China that is leading to huge levels of exports of Chinese steel around the world. Read more

An interesting article in the Financial Times explores ThyssenKrupp’s quandary as both steelmaker and industrial conglomerate.

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On the one hand, as a steelmaker, it is exploring the possibility to merge its European steel operations with those of Tata Steel. The European steel market desperately needs consolidation, but no one is willing to bear the brunt — politically or economically — of closing multiple plants and laying off thousands of workers.

One attraction of a merger could be that ThyssenKrupp and Tata might keep open its German and Dutch facilities, but try to close or scale down Tata’s Port Talbot operations in South Wales. After Brexit, Britain — and maybe all of what’s presently the U.K. — will no longer be of much concern to the rest of Europe. Regardless, the article’s main focus is on protectionism. The E.U. is in the process of applying historically high duties to Chinese steel; some as high as 73.7% for heavy-plate and 22.6% for hot-rolled, levels said by the Chinese to represent “reckless trade protectionism.”

Protected Bubbles in a Global Marketplace

That sours the air between Europe and China on the question of open trade relations. ThyssenKrupp, one would think, would benefit, though. Of its six divisions — Steel Europe, Steel Americas, Components Technology, Elevator Technology, Industrial Solutions and Materials Services — the steel divisions represent 30% of its revenue but only turned a modest profit in Q2 not least of which because prices were depressed in part by China’s low-priced imports.

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In microcosm, ThyssenKrupp is an example of a wider issue, the article suggests. You can’t adopt selective punitive tariffs on some products and not expect some form of retaliation or more willing adoption of reciprocal tariffs on other products or services areas by those affected importers. Steel generates just 2% of Thyssen’s profits, so 98% come from its much more promising elevator and industrial products divisions… divisions that benefit most from a free and open global market place.

Diversified Companies, Single-Industry Tariffs

The article berates ThyssenKrupp for its capital-destroying and high loss-making forays into primary steel production in Brazil and processing operations in the U.S. that the company has since sought to extract itself from. The share price, the FT says, has made no progress in five years.

Source ThyssenKrup

Source: ThyssenKrupp

But, from our perspective, the impressive fact is that even after these massive loss-making ventures — said to total some $15 billion — the share price has still managed to maintain its level from five years ago. Other steelmakers that have not made such, in hindsight, poor investment decisions are doing no better. ArcelorMittal is much the same, if not worse. The trend has been consistently down.

Source: Yahoo Finance

Source: Yahoo Finance.

What has held ThyssenKrupp up, kept the faith of its shareholders and created growth and promise for the future, is those elevator and industrial products divisions. Those divisions that rely on open, unfettered, access to world markets. Read more

Domestic steel prices continue to slide. This is an unusual divergence given that the rest of industrial metals continue to rise in price. Then why steel prices are falling in U.S.?

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The reason is pretty clear by now. Steel prices rose significantly in the first half of the year, both in the U.S. and globally. However, the price increase was much more significant domestically thanks to trade cases. U.S. steel imports from China plunged, inflating domestic prices. This is particularly true in flat products like cold-rolled coil (CRC). Prior to trade cases, China accounted for more than half of U.S. CRC imports. Imports from China were effectively shut down thanks to super-high anti-dumping duties of 265%.

CRC US vs CRC China since 2012

U.S. CRC vs Chinese CRC since 2012.

China is what moves international prices. China accounts for more than half of global steel consumption and production. China WAS the biggest steel exporter. Not anymore in the U.S., thanks to trade cases. Read more


James May

It is the time of the year when a lot of managers get asked to prepare next year’s budget.

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If you are a steel buyer then you probably need to come up with a number for your boss. It would also help if you were right, or at least had some strong arguments to back you up!

Don’t Panic!

We’re here to help. Early in the summer, U.S. hot-rolled coil prices topped out at $630 per ton. Currently, they are $500 a ton.

Our earlier reports highlighted the reasons why, but we recap them here:

  1. U.S. flat product mills are operating at high utilization rates. Don’t believe the American Iron and Steel Institute crude number.
  2. The high U.S. prices midyear opened up a major arbitrage. As the chart highlights, a big arbitrage results in rising imports, which have already turned higher. The anti-dumping action simply resulted in a diversion to alternate supply. This will arrive in Q4 and into Q1.
  3. The combination of higher domestic output and import arrivals led to excess supply and rising inventory.
  4. Under those circumstances, consumers do not need to buy and lead times have dropped to two to four weeks for HRC, incentivizing mills to discount. With scrap down to $220 per metric ton delivered, electric-arc furnace minimills, in particular, have the margin to offer those discounts.

Prices are therefore likely to drop to $450 per ton in Q4 and potentially even lower in Q1 2017.

U.S. Imports (000 metric tons) and HRC Price Arbitrage ($/metric ton)


Source: Steel-Insight.

However, this rapid decline in prices means that the excess inventory build is likely to be small. Looking at the chart, we see that the “arbitrage window” was realistically only 3-6 months. In the last few weeks, HRC import buying has slowed dramatically, although cold-rolled coil and hot-dpped galvanized imports still make sense. Read more

U.S. builders and contractors trimmed spending on construction projects in August for a second straight month with housing, non-residential and government activity all seeing declines.

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Construction spending dropped 0.7% in August after a 0.3% slip in July, the Commerce Department reported Monday. It was the third decline in the past five months. Our Construction MMI fell 3% from 70 to 68 as well.


The unexpected drop hit all sectors of U.S. construction. Residential construction decreased 0.3%, while non-residential activity was down 0.4%. Spending on government projects fell 2%, dragged down by a sharp drop in activity at the state and local level, which has fallen to the lowest point since March 2014.

Infrastructure spending continues to be a key issue in the presidential campaign and these numbers back up arguments, from both candidates, that our roads and bridges are crumbling while governments at all levels turn a blind eye to the problem. The question the democrats and the republicans disagree on, and Hillary Clinton and Donald Trump are no different in this regard, is where will the money for a federal construction spending plan come from?

The Construction MMI saw prices drop nearly across the board. A week-long National Day holiday in China crimped copper prices as demand wasn’t even that strong in the world’s largest consumer before the shutdown. The cities of Guangzhou and Shenzhen are the latest to impose new measures to cool overheated real estate markets in China, including higher mortgage down payments and home purchase restrictions.

The Slowdown Lowdown

While U.S. prices weren’t expected to drop as much as they did, a slowdown was certainly expected at the end of the summer construction season and during China’s shutdown. As winter arrives in the U.S., a traditional slowdown in purchasing usually takes place. Ultra-low interest rates and a growing economy are what many economists say will keep the slowdown a short one. If that was the case, though, why wasn’t spending more robust in the summer months? The Construction MMI, like the overall U.S. economy, has been mired in slow-to-no-growth for most of the year with only a few strong months keeping it net positive (especially May).

That the “natural rate” of interest has fallen to low levels could mean the economy is stuck in a low-growth rut that could be hard to escape, Federal Reserve Vice Chair Stanley Fischer said on Wednesday. It’s hard to expect builders and contractors to buy more steel I-beams and copper wiring when they, themselves, are not increasing the number of projects they’re billing clients for.

What Growth?

Private construction is barely making up for public shortfalls. The strongest sector over the past year has been non-residential activity, which is up 4.2% from a year ago, followed by residential construction, which has risen 1.4%. Total public construction, however, is actually down 8.8% from last October, reflecting a squeeze on spending from efforts to control budget deficits at all levels of government.

This is where economists such as the Associated General Contractors of America‘s Chief Economist, Ken Simonson, say a federal infrastructure spending plan would help.

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“While demand for construction remains robust, it is no longer growing like it was earlier this year,” Simonson said. He also said the building industry could get a welcome boost if government policymakers moved to upgrade “our aging infrastructure.”

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Finished steel imports into the U.S. were down in August and Indonesia may finally restart shipments of raw ore to other countries, which could bring nickel back to China.

Steel Imports Still Down

Based on preliminary Census Bureau data, the American Iron and Steel Institute reported recently that the U.S. imported a total of 2,989,000 net tons (NT) of steel in August, including 2,307,000 net tons of finished steel. That’s down 8.5% and 6.6%, respectively, vs. July final data.

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Year-to-date, through eight months of 2016, total and finished steel imports are 21,962,000 and 17,601,000 nt, down 22% and 23%, respectively, vs. the same period in 2015. Annualized total and finished steel imports in 2016 would be 32.9 and 26.4 million nt, down 15% and 16%, respectively, vs. 2015, if the current trends hold.

Finished steel import market share was an estimated 25% in August and is estimated at 25% on the year-to-date.

Key finished steel products with a significant import increase in August compared to July are standard pipe (up 33%), wire rod (up 23%), structural pipe and tubing (up 18%) and hot-rolled bars (up 15%).  Tin plate (up 12%) had a significant year-to-date increase vs. the same period in 2015.

Indonesian Mining Rules

Indonesia is finalizing an overhaul of its mining rules that could give companies up to five more years to build smelters, and reopen exports of nickel ore banned since 2014, the country’s mining minister said on Tuesday.

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The proposed changes provide a way around a 2017 deadline for full domestic processing of mineral ore, potentially pushing completion of that aim to 2022, but also possibly undermining investor confidence.

Much is being made of a mega merger between the publicly traded arm of Shanghai Baosteel Group Corp., the second-biggest Chinese steel mill by output, and the listed unit of Wuhan Iron & Steel Group Corp., its No. 6 steelmaker.

Profitable Baosteel will issue new shares to swap with the loss-making smaller firm. The Chinese press is full of the deal, saying it will rival ArcelorMittal in size and hailing it as an example of Beijing’s drive to consolidate the steel industry and tackle overcapacity.

Why the Urge to Merge?

ArcelorMittal, produced 97 million metric tons of steel last year and has a market value of $17.2 billion. Baoshan and Wuhan were worth $16.3 billion combined as of the June 24 close and produced about 60 mmt last year. Baoshan is a profitable enterprise and generally acknowledged to be well run. Wuhan, on the other hand, is loss making, carries too much debt and, probably in the newly combined group, ripe for plant closures and rationalization.

With 1.2 billion mt of crude steelmaking capacity but 803 mmt of steel production, China clearly has a massive overhang of unproductive capacity, causing some firms to be heavy loss makers. Estimates put combined losses for the industry at $10 billion last year.

But, for Beijing, it is as much a desire to clear up these loss-making companies before the market pulls them down into bankruptcy than it is to cut excess steel capacity. There is little doubt it has taken Beijing’s arm-twisting on profitable firms like Baoshan to take over loss makers like Wuhan that they would probably otherwise steer well clear of.

Beijing wants to avoid a domino collapse of lesser steel firms, like Dongbei Special Steel Group, owned by the Liaoning state government that finally filed for bankruptcy this month after eight, yes eight, defaults.

“If they can merge with others, they merge,”  Li Hongmei, an analyst at S&P Global Platts is quoted in the Financial Times as saying. “If not, they will ask the banks if they can change debt for equity. If that fails, then they will choose the last resort — that will be bankruptcy.”

But bankruptcy is bad for publicity, bad for workers, bad for the banks left holding the debt. Better, in a state-directed world, to have a profitable firm swallow them up and quietly rationalize the loss-making operations.

What’s China’s Real Plan for Loss-Making Steel?

The Economist reports on the wider trend, saying China aims to establish two major steel groups, one in the north and one in the south. The northern union of Hebei Iron & Steel Group with Shougang Group would be the nation’s biggest producer, with output of 76 mmt last year for a share of national production at 10%, topping Baosteel-Wuhan’s 8% share in the south, according to 2015 figures.

Meanwhile, there are rumors Ansteel Group Corp., the country’s fourth-biggest producer, could merge with regional peer Benxi Steel Group Corp. but, apparently, the firms are not confirming discussions are ongoing.

What About Those Steel Closures?

The aim is to close 150 mmt of capacity by 2025 but that will hardly put a dent in the 400 mmt of excess capacity in the country, more importantly for Beijing it may take the worst of the basket cases out of the public eye swallowed up by larger, state-directed groups.

The FT, though, offers a cautionary note: The drive to preserve and promote high-end, coastal steel production capacity while cutting off low-end, inland capacity is present throughout the restructuring plans, including the headline Bao-Wu merger.

“Coastal capacity is growing, and that’s the main trend of the next two years,” the FT reports. “Baosteel has a plant in Guangdong. Wisco has one in Guangxi, and they are ramping up to just under 10 mmt of capacity a year each by the end of 2017. What international steel producers really should be asking is what’s happening with the extra 50 mmt of capacity being commissioned on the Chinese coast in the next two years.”

That new capacity is better placed to service export markets than the plants being closed inland, how much of this drive is really to address overcapacity and how much is it to improve profitability and avoid the trauma of bankruptcies.

The industrial metals complex saw prices slip nearly across the board in August as volatility
returned to stock markets and investors lost confidence in central banks’ ability to increase


Even the vaunted Global Precious MMI, which has enjoyed large gains this year due to safe
haven status, dropped this month. It experienced a 4.5% loss. Our Construction MMI and the Grain-Oriented Electrical Steel MMI indexes saw increases this month, but every other sub-index either saw a 2-5% loss or held flat.

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This was somewhat expected as metals such as steel and aluminum remain in a global oversupply situation and metal prices don’t move in a straight line. They zig-zag. Our metal price benchmarking service has thousands of transaction prices to reference as evidence of that.This could be merely a one-month correction or it might signal that the weakness in metals markets is finally denting the bull run of strong price performers such as gold and platinum. Stay tuned next month for more.

Republican Presidential Nominee Donald Trump recently said he would scrap some controversial EPA plans and rules and allow more drilling for oil and gas on federal lands. Steel companies applauded the Senate’s passage of a new water reclamation bill.

Trump Would Scrap Clean Power Plan

Republican presidential nominee Donald Trump released details Thursday of his proposed energy policy, which includes scrapping the Environmental Protection Agency‘s controversial Clean Power Plan and Waters of the United States rule.

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He also promised to open more federal lands and waters to oil and gas development.

Steel Companies Praise Water Bill

The American Iron and Steel Institute (AISI) recently applauded the U.S. Senate’s passage, by a vote of 95-3, of the Water Resources Development Act (WRDA), which will authorize more than $10 million worth of projects to improve navigation, replace and restore aging locks and dams, and provide aid to Flint, Mich. and other communities in need of replacing pipes, sewers and other drinking water infrastructure.

U.S. steel companies applauded as tariffs were upheld on hot-rolled steel flat products and the London Metal Exchange took a hit when it had to move its open-outcry trading to another location when its new office wasn’t ready this summer.

ITC Upholds Hot-Rolled Steel Tariffs

The U.S. International Trade Commission handed another victory to American steelmakers on Monday, affirming most of the recent anti-dumping and anti-subsidy duties on hot-rolled flat steel imports from Australia, Brazil, Britain, Japan, the Netherlands, South Korea and Turkey.

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The commission rejected anti-subsidy duties of about 6% against hot-rolled steel from Turkey, but affirmed anti-dumping duties of about 6 to 7% against Turkish-made hot-rolled steel. The rest were all upheld.

LME Trading Move Hit Volumes Hard by Move

The temporary relocation of open outcry trading at the London Metal Exchange (LME) to a disaster recovery site due to problems at its new offices hit volumes hard during the already quiet summer months, brokering sources said.

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For all contracts traded on the LME, volumes fell more than 9% year-on-year in August to 12.18 million lots, after a drop of nearly 18% in July. Volumes for aluminum and copper fell nearly 22% and seven percent respectively in August from the same period a year ago.