Ferrous Metals

I had the pleasure of attending the S&P Global Platts Steel Markets North America conference held recently in Chicago.

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The general outlook at the conference for steel markets in the year ahead was notably optimistic, although each of the initial speakers differed in who and/or what the audience should pay attention to in the coming months and years.

Conference keynote speaker, Herb Black, CEO of American Iron & Metal Company had his eyes on Turkey and its burgeoning scrap market. Timna Tanners, Managing Director of U.S. Metals and Mining at Bank of America Merrill Lynch, encouraged the audience to focus on China, while Beth Ann Bovino, Chief U.S. Economist for S&P Global Ratings, spoke to present macroeconomic conditions with a watchful eye on the current administration and potential post-election policy changes. Read more

This part two of our sit down with Steel Manufacturers Association President Philip K. Bell at the recent S&P Global Platts Steel Markets North America conference here in Chicago. Bell currently serves on the Department of Commerce International Trade Advisory Committee on Steel (ITAC 12), advising the Secretary of Commerce and United States Trade Representative on trade policy, trade agreements, and other trade related matters that benefit U.S. businesses, workers, and the economy.

Jeff Yoders: You mentioned that the proposed border-adjustment tax is something you have to be very, very careful about.

Philip K. Bell: Ironically, when I look at things the administration should prioritize, I would really like to see infrastructure rise higher on that top five list as opposed to things like a healthcare repeal because that’s one clear way that you can jump start the steel industry.

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Philip K. Bell

Philip K. Bell. Source: SMA

The steel industry, to me, if you look at it in the simplest terms, is based on cost and demand. You can help lower steel producers’ costs by reducing taxes and regulatory burdens, but you can increase demand by having this $1 trillion infrastructure plan and that would be very important. Making sure you deal with countries that dump, subsidize exports, etc. would also help.

JY: Using countervailing duties, anti-dumping duties and the existing tools commerce has, right?

PB: Right.

JY: I asked Chad Utermark, executive vice president of Nucor, what, exactly, their representatives had heard about when we might get to see the ideas for an infrastructure bill precisely because of that. This seems like a slam dunk for economic growth for all the industries that support construction. Why isn’t it being pushed more?

PB: We certainly would like to see infrastructure investment made a higher priority. I love the idea of public-private partnerships. The P3 approach is good, you’re going to bring better managerial skill with people who can manage the entire supply chain of infrastructure investment. Keep in mind, infrastructure can be financed this way, but it also needs to be funded (to an extent by the government). There are some infrastructure projects that are very important but might not appeal to private investors. They might not be easy to get done. Read more

In the ongoing dispute between Japan and India over cheap steel imports, Japan has requested that the World Trade Organization set up a panel to resolve the dispute.

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Early indications are that the move will be opposed by India. Japan’s request comes after New Delhi imposed safeguard duties on several iron and steel products, which India claimed violated global trade rules.

India’s finance ministry imposed definitive safeguard duties on imports of hot-rolled flat products of non-alloy steel in coils to counter a surge in imports from several countries, including Japan. India’s stand has been that such cheap imports “caused injury to domestic steel industries.”

New Delhi would have taken recourse to the safeguard measures on grounds that the import surge in hot-rolled flat products is the result of unforeseen developments. India levied 20% safeguard duties ad valorem minus anti-dumping duties on Japanese imports of hot-rolled flat products between September 2015 and September 2016; 18% between September 2016 and March 2017; 15% between March 2017 and to expire by September 2017; and 10% for a future period in September 2017 and March 2018.

As reported by MetalMiner, despite the excellent trade relations between the two nations, 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.

Japan requested the panel came after India’s failure to provide “convincing reasons” for its safeguard and anti-dumping actions. It’s said the request will come up before the dispute settlement body (DSB) meeting today.

According to a report in the Financial Express, India opposes Japan’s move. Quoting experts, the report said since WTO cases can be settled with rulings that were “prospective,” any adverse judgment would not affect India significantly.

In a parallel development, there are reports coming in that India would use make it compulsory for Indian customers to use domestically produced steel, to stop inroads made by steel products from other countries including China.

India may soon mandate the use of local steel in government infrastructure projects worth billions of dollars, pitching it as a WTO-compliant protectionist measure.

Quoting news agency Reuters, the report said the Indian Government expects to move to boost sales of local companies such as JSW Steel and Tata Steel and eventually attract global steelmakers such as ArcelorMittal and POSCO to invest in the country.

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India is the world’s third-largest steel consumer, but its current level of capacity utilization by domestic steel producers is below 80%.

The Department of Commerce announced its affirmative final determination in the anti-dumping duty investigation of imports of South Korean ferrovanadium.

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For the purpose of an anti-dumping investigation, dumping occurs when a foreign company sells an imported product in the U.S. at less than its fair value.

Commerce found dumping by mandatory respondent, Korvan Ind. Co., Ltd., at a final margin of 3.22%. Additionally, based on the application of adverse facts available, Commerce found that dumping has occurred by mandatory respondents, Fortune Metallurgical Group Co., Ltd. and Woojin Ind. Co., Ltd., at final margins of 54.69%. Commerce assigned a final dumping margin of 3.22% to all other producers/exporters in Korea.

As a result of the final affirmative determination, Commerce will instruct U.S. Customs and Border Protection to collect cash deposits based on these final rates.

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The petitioners for this investigation are the Vanadium Producers and Reclaimers Association — a Washington DC-based trade group — and its members: AMG Vanadium LLC of Ohio; Bear Metallurgical Company in Pennsylvania; Gulf Chemical & Metallurgical Corporation of Texas; and Evraz Stratcor, Inc. in Arkansas.

Those not involved in the steel industry tend to look at large, integrated blast furnace steel plants as dated technology light-years from the gleaming glass and concrete operations of IT or electronics. However, steelmakers are constantly striving for technological improvements.

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In fact, the very marginal nature of steel production in the western world means that constant innovation is a necessity for a firm’s survival. Comparisons between U.S. Steel and Nucor Corp. illustrate this point. When U.S. Steel was focused on cost reduction and rationalization at the turn of the century, Nucor was innovating and investing not just in alternative electric arc furnaces, but in direct casting and other downstream technologies. As a result, Nucor is now North America’s most successful steel company but they’re not alone in looking to technology for their future prosperity.

Continuous Casting

An interesting article in the Economist details efforts at a number of steel producers around the world to find a better alternative to the traditional blast furnace. The slab casting and re-rolling route is epitomized by the likes of U.S. Steel and the major Asian steel mills. For years, the only real challenger to this process was the electric arc furnace which enjoys the benefits of scrap as a raw material and greater flexibility and economies of scale allowing it to operate profitably on a fraction of the cost required throughout for a traditional blast furnace-based integrated steel plant.

Liquid steel.

Innovation in steelmaking is coming from novel uses of liquid metal. Source: Adobe Stock/Photollug.

One of the major attractions most EAF plants have is that they produce final product by the continuous casting route. The liquid metal is taken from the refining vessel and, for flat-rolled products, continuously cast into 80-120-mm thick slabs, which can then be further rolled to thinner gauges. Read more

As one might misquote Mark Twain, we have been here before.

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In 2016, analysts were queued up to predict the iron ore price was going to collapse only for it continue its relentless rise. The recent pull back from $90 per metric ton has brought a fresh crop of dire predictions. Yet maybe, just maybe, there is more validity this time around for caution as to future price direction. There are a number of factors, each of which individually does not signal a price reversal but collectively suggests iron ore prices later this year could be lower than they have been in the first quarter.

Why Iron Ore Prices Might Really Fall

An article in the Australian Financial Review quotes analysts saying, the strength of recent pricing is encouraging Chinese domestic production to increase. In the first half in 2016 it was averaging a 220 million mt per year run rate, but rose to 280 mmt per year in the second half of the year. At the same time, global supply continues to rise with not just increased shipments from Australia but also number three miner Vale SA expanding supply from its $14 billion S11D mine. Read more

U.S. M3 grain-oriented electrical steel prices dropped slightly with the M3 index moving from 200 to 197.

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Though U.S. prices dipped slightly, China’s Baosteel announced a price hike for GOES close to $40 per metric ton, according to a recent TEX Report. Although the Chinese have led recent GOES and other steel product price hikes, others have not necessarily followed. Nevertheless, Chinese steel prices set the floor for global steel prices.

GOES MMI

Now that the Trump administration has begun to settle in, market observers have paid close attention to trade actions within the metals industry, particularly the cold-rolled coil circumvention case and most recently a case filed by the Aluminum Association against China involving aluminum foil. Both the domestic steel and aluminum industries have pursued trade cases to address overcapacity concerns.

GOES Prices and NAFTA

GOES markets follow some of these same patterns. Back in 2013, GOES from China accounted for about 10% of total U.S. GOES imports (by tonnage). Clearly, the trade cases filed by the domestic producers at the time limited Chinese imports, but that trade case sought to stop other countries’ imports as much as China’s.

Herein lies a big difference between the GOES case and the aluminum case as well as the prior flat-rolled product steel cases. The GOES trade case did not result in any finding of injury, so no anti-dumping and countervailing duties were assessed. Instead, domestic power equipment manufacturers shifted their global supply chains to source GOES globally and purchase transformer parts and wound cores from NAFTA countries.

Some have speculated that two years ago, the addition of two new harmonized tariff codes for both transformer parts (8504.90.9546) and wound cores (8504.90.9542) would set the stage for future trade cases brought by the lone domestic GOES producer. We think this looks like a “stretch” and, legally, we’re not even sure there is a case to be had as AK Steel currently does not manufacture transformer parts or wound cores.

Import volumes for wound cores have modestly increased, but imports for transformer parts have actually declined:

GOES imports from 2015 to today

GOES imports from 2015 to today. Source: Lisa Reisman/MetalMiner.

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The operating cost of rolling cold-rolled coil from hot-rolled coil is around $30-50 per metric ton depending on how efficient the steel mill is. Internal (or external) logistics cost to shift the coil between the HRC mill and a CRC mill could be as much as $40/mt but a single-site mill won’t have that cost.

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Add in capital costs that are amortized over the mill life of up to $15/mt and it is no surprise that the long-term price of CRC has been around $100/mt above the price of HRC.

Right now, spot HRC prices are a minimum of $820/mt while HRC is $620/mt. That is a spread of $200/mt.

That makes CRC one of the most profitable products in the steel industry. Why is that the case?

Spread of CRC over HRC ($ per metric ton)

Source: Steel-Insight

First of all, we need to look at the way that the U.S. steel industry is structured and realize that CRC is a niche. Read more

We are used to steel producers and their trade bodies raising objections to steel imports from China here in Europe, even from Russia and Ukraine but here’s a new one: Iran.

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Reuters reported last week that Steel lobby group Eurofer said Iranian exports to Europe had leapt to just over 1 million metric tons annually, putting the country just behind India at 1.9 mmt, and third to China at 5.7 mmt last year. Read more

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