Ferrous Metals

The MetalMiner monthly domestic GOES MMI reading continued its slide moving from 195 to 191 in its third consecutive month of declines against smaller import volumes, despite a higher domestic surcharge.

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Unlike U.S. steel pricing, the various global trade cases on grain-oriented electrical steel have had somewhat of a limited impact on global prices.

GOES_Chart_June_2016_FNL

The demand for certain types of steels has created shortages for some materials and surpluses for others and may help explain why the M3 price has drifted lower as opposed to moving higher (we’d expect to see rising U.S. prices in particular as a result of the closure of the Allegheny Technologies, Inc. GOES line).

Tex Reports suggests that prices have begun to rise in China because of the anti-dumping cases placing a squeeze on products coming from overseas mills, and, therefore, diverting them to other markets in the Middle East and India, with no price increases.

Compare Prices With The May 2016 MMI Report

The dynamics between the high-grade products and the standard/lower grade products have kept domestic spot M3 prices in check. Last month we reported that market participants thought M3 prices would flatten during the summer and then start slipping toward the end of the year. Indeed this appears to be happening but perhaps sooner than anticipated.

Datamyne_GOES_Chart_432_060816

Source: Datamyne

Meanwhile, the volume of imports of transformer parts has risen since a dip back in February of this year. This suggests to us that demand has held reasonably steady.

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Steel markets painted an interesting picture in May. Chinese steel prices fell in May while US steel prices continued to skyrocket. Let’s explore this unusual divergent between Chinese and U.S. prices.

Raw-Steels_Chart_Jun-2016_FNL

Chinese Steel Prices Fall

This year we saw an improvement in steel market demand in China thanks to stimulus measures. Also, China, the world’s biggest steel producer, vowed to cut production capacity by 10-15% over the next five years.

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This combination boosted sentiment in the steel market and prices in China rose. However, as prices rose, the market questioned whether the price rally would hinder the country’s efforts to tackle that overcapacity problem.

And the market has good reason to have questions. Massive overcapacity in China’s steel industry has yet to shutter. While China’s crude steel output dipped 2.3% in 2015, production rose 0.5% in April compared to the same month last year.

Meanwhile, in May, government officials said that Beijing would continue to urge local governments to push forward steel industry capacity cuts and take reasonable measures to accelerate closures. China says that the capacity that has recovered is regular capacity, and not the one marked for closure. Certainly, If China falters on its commitment to reduce excess steel capacity, we could see that impact global steel markets, including U.S. But so far, unlike Chinese prices, U.S. prices didn’t tumble in May.

US Steel Prices Continue to Rise

The momentum in domestic steel prices continued in May. HRC prices rose by more than 20% just in the past four weeks. U.S. steel buyers will feel the price increase in their budgets this year unless, like our subscribers, they started hedging at lower prices earlier this year.

The price divergence between the U.S. and China comes down to imports. Steel imports into the U.S. were down in April. For the first four months of 2016 total and finished steel imports were down 34% and 33% vs. the same period in 2015. In addition, US steel producers seem reluctant to bring their idled capacity back online despite dried up import supply lines, particularly for flat-rolled steel products.

Free Download: The May 2016 MMI Report

This combination has left buyers in a short squeeze. Lead times for flat-rolled steel products have risen, allowing U.S. steel companies to raise their base selling prices.

What This Means For Metal Buyers

U.S. steel prices remain strong, but after the huge price gains seen this year, we wonder if, despite strong trade protections, domestic prices will suffer in the second half due to the ongoing global overcapacity issues and the recent correction in iron ore and Chinese steel prices.

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There are seven suitors in the ring for the United Kingdom assets of Tata Steel, but is the Indian steelmaker possibly rethinking selling the unit off and planning to keeping the business?

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A report in the Guardian quotes “sources close to Tata Steel” has claimed that Tata, even as it was going through the motions of the sale process, “was evaluating” the performance of its U.K. operations and the package of financial support that the U.K. government offered.

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

This steel plant at Port Talbot in South Wales, U.K., might stay in Tata’s hands if the owner can work out a similar pension fix to what other suitors are offering. Source: Adobe Stock/Petert2

Hit by cheap Chinese steel imports, as elsewhere in the world, in addition to supply glut, Britain’s steel industry has been in the doldrums for some time now. In March this year, Tata Steel announced that it wanted to sell its remaining plants in the country, putting over 11,000 jobs at risk. Read more

Anyone looking at the seaborne Asian Iron ore market? A cursory glance at China’s iron ore market and one has to ask, “what’s going on?”

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Iron ore prices have been on a roller coaster this year, yet reports abound of excess iron ore supply, excess steel production, excess steel capacity and falling property prices and, by extension, excess appetite for construction steel.

There is still mine oversupply. Source: Adobe Stock/nikitos77.

There is still mine oversupply. Source: Adobe Stock/nikitos77.

This week, reports of rising port stocks, up 1.6% to 100.45 million metric tons or five weeks of supply should have depressed prices, but the prevailing mood among traders seems to be one of cautious optimism that iron ore consumption and, hence, steel production will continue strongly this year, so much so that iron ore prices actually rose 2.7% to $54.98 per mt late last week. Read more

The MetalMiner monthly GOES MMI reading dipped slightly from 202 to 195 against smaller import volumes. Market participants report to MetalMiner that grain-oriented electrical steel prices have fallen a bit in China, as well, though non-grain-oriented electrical steels have increased.

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However, AK Steel did add a surcharge of $65 per metric ton effective with June orders, the first higher surcharge since January.

GOES_Chart_May_2016_FNL

According to recent comments made by Roger Newport, CEO of AK Steel, demand appears solid for high-efficiency electrical steel. He also pointed to stronger housing starts, though they remain below historical norms. In addition, Newport indicated the new transformer efficiency standards would help with overall demand. AK Steel also received a boost when ATI closed its Bagdad facility in Gilpin, Pa., driving approximately 35,000 tons of new business to AK Steel.

Steel Rising

In the meantime, the steel market price rise, in general, appears more supply-driven as opposed to demand-driven. Many have questioned whether any more new demand will appear during the second half of the year which means that for prices to stay supported, producers will need to remain vigilant about managing capacity. Some believe prices will flatten during the summer and then start slipping toward the end of the year.

Although GOES markets don’t closely correlate with underlying steel markets, some of the drivers of steel prices also apply to electrical steel. These drivers include: China’s ability to hold prices higher (we have started to see some cracks in that foundation). Unlike in the U.S., Chinese producers work together to set market prices, a recovery in products and materials used in the oil and gas industry on the basis of a rising oil price and, finally, the overall health of commodities markets and base metal prices.

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U.S. shredded scrap prices started 2015 at $350 per long ton delivered to Midwest steel mills.

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Barring a very brief rally in June, the price fell every month over the year and dropped to $170/long ton in December. Indeed, if we look at the chart, U.S. ferrous scrap prices have been in a downtrend since late 2013.

U.S. Shredded Scrap Prices ($/long ton delivered US Midwest Mill)

steel_insight_scrap_300_050116

Source: Steel-Insight.

When prices fall every month, scrap yards and steel mills reduce their purchases to the bare minimum as they expect to be able to procure material at a lower price the very next month. Read more

The stock market has reacted positively to dovish comments from the Federal Reserve and Tata Steel’s bid to sell its U.K. branch could set off a rash of mergers and consolidations in the European steel industry.

Yellen Stresses Caution

Janet Yellen, the Federal Reserve chairwoman, said on Tuesday that the U.S. economy remained on track despite a rough start to the year because of the drag from weak growth in other countries, although she noted that the drag was being offset by lower borrowing costs.

Free Download: The March 2016 MMI Report

Yellen told the Economic Club of New York that the economy “had proven remarkably resilient,” and that the Fed expected better days ahead. She said the Fed still intended to pursue a careful, patient course toward higher interest rates as the economy improved, yet the cautious tone of her remarks, however, suggested no rate increase was likely at the Fed’s next meeting, in April.

More Consolidation for European Steel?

Tata Steel’s plan to sell its U.K. steelmaking business has raised expectations of a long-awaited consolidation in the European steel sector, which is suffering from years of unaddressed overcapacity.

Since the multibillion-euro takeovers of Europe’s Arcelor and Corus by Indian giants Mittal and Tata in 2006 and 2007, dealmaking in Europe’s steel industry has been all but paralyzed as cash-starved producers battled the global economic crisis and a slowdown in China that encouraged it to export cheap steel.

Building owners and other construction project stakeholders should anticipate non-residential construction costs to increase 3% to 4% on average this year with most markets reporting robust activity and healthy employment in Q4 2015, according to Mortenson’s Construction Cost Index.

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The Minneapolis-based general contractor releases the index quarterly and it prices representative non-residential construction projects in six representative geographies throughout the U.S.

Mortenson-Graphic-Q4-2015_550_032216

Source: Mortenson Construction.

Mortenson Chief Estimator Dennis McGreal and Director of Design Phase Development Nathan Lingard recommended building owners and other stakeholders expect cost increases of 3.5 to 4% in 2016 for construction components such as structural steel and steel framing.

Still, according to the report, all of the markets studied are considered healthy according to data from the U.S. Bureau of Labor Statistics. The Mortenson Construction Cost Index tracks building component trends in 30 categories with many component prices flat to moderately up in the fourth quarter of 2015.

Employment Situation

“There continues to be a lot of activity in the markets we track although average project size is reduced relative to recent years,” said Clark Taylor, vice president of estimating at Mortenson. “Construction employment is leveling out and price escalation should be more consistent with long-term averages. We believe this should allow customers to more accurately plan for increases in the next year.”

Free Download: The March 2016 MMI Report

The labor shortage was a huge problem in construction in 2015. While the cost increases predicted likely won’t shelve any projects, the bigger news is that Mortenson is reporting construction employment growth has slowed in most of the metros it followed. A respite from the shortage could do wonders for labor costs for construction projects.

Anti-dumping actions dominated the metals world again this week as the U.S. government promised to get even tougher on subsidized imports of foreign steel, aluminum and other products.

Wednesday: Hot-Rolled Flat Dumping

The Commerce Department placed tariffs on hot-rolled flat products from Australia, Brazil, Japan, Korea, the Netherlands, Turkey, and the U.K. on Wednesday This started the ball rolling on what looks to be a contentious fight over duties as high as 49% (the U.K.) and 36% (Brazil).

Free Download: The March 2016 MMI Report

Previously, most of the duties placed on hot-rolled steel products had involved China. Now, it’s other producer-nations in the crosshairs. While China’s the source of most of the overproduction, why should they get all of the duties? As this result shows, Brazil and the U.K. are no slouches at sending steel they can’t sell at home over here.

Semi-Finished, Fully Melted

In aluminum, Commerce has finally been convinced that that it needs to investigate aluminum “semi-finished products” which are really just slabs welded together. Seriously, that’s what the whole case is about. Apparently welding the slabs together keeps them from being taxed when leaving China, which, in turn, keeps them from being eligible for import duties in the U.S. Most are melted back into ingots upon their arrival in the U.S., anyway.

It was another week of import duties.

It was another week of import duties.

Good luck, domestic extruders! The “semi-finished” scam was one of the more insidious dumping tactics we’ve seen in the past few years. Read more

Our Stainless MMI remained steady at 51 points. However, we currently see some factors that could lift prices in the short term.

Stainless Anti-dumping Case

On March 4, the U.S. Commerce Department launched an anti-dumping and countervailing duty investigation into Chinese imports of stainless steel sheet and strip, for possible illegal subsidies and selling prices at below cost to illegally gain market share. A preliminary determination of injury to U.S producers is scheduled by March 28.

Stainless_Chart_March-2016_FNL

China’s Ministry of Commerce didn’t respond well to the this new case, arguing that simply restoring prices via protectionist means is not the solution. Chinese steel firms have already been impacted by trade cases. Recently the Commerce Department had imposed 266% preliminary duties on imports of cold-rolled steel from China, punishing Chinese steel makers for dumping or selling below cost. In December, China received a dumping margin of 266% on corrosion-resistant steel products.

Compare Prices With The February 2016 MMI Report

These tariffs have helped U.S. imports come down this year. That led to lower inventory levels here and have given U.S. mills the ability to rise prices. Steel prices climbed over the past few weeks, and stainless prices could follow. With the threat of anti-dumping lawsuits looming, the volume of imported stainless sheet and strip had already been diminishing, which should be seen in the upcoming months. The lack of imports has already pushed out domestic lead times and could create a supply shortage once service center restocking starts. However, it’s still questionable whether prices will hold just on import tariffs alone. Low international prices will add downside pressure if stainless domestic prices rise, especially since China is the only named party.

Nickel Prices Could Rise Short Term

Nickel is the worst performer among base metals this year. However, we are seeing some price strength in the industrial metal complex that could push nickel prices higher in the short term, especially if the US dollar continues to weaken.

Indonesia’s energy minister said in February that the country could ease the ban on nickel ore exports. Indonesia was China’s top nickel ore supply country prior to the ban, which enabled the Philippines to catch up.

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Back in 2014 when the ban was implemented, nickel was trading above $15,000 per metric ton. However, Indonesian companies didn’t expected that nickel would be trading today at half that price.

Indonesia Might Ease Export Ban

Because of falling nickel prices, many of the smelters that miners intended to develop have not materialized. Now, the government is going to review its export ban policy as miners struggle and Indonesia´s smelting capacity will not be sufficient by next year amid miners’ unwillingness to develop those costly smelting operations.

The removal of the export ban would add more nickel supply to international markets, possibly driving prices down while demand is weak, especially in the energy sector.

What This Means For Metal Buyers

Stainless prices could experience a short-term bounce on new import tariffs and overall strength across the base metal complex. However, prices will likely struggle to rise longer term while demand remains weak and producers don’t cut production in a big way.

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