Ferrous Metals

The month of August has seen the Indian government slap anti-dumping duties on the import of a variety of steel products from six countries including China, South Korea, Brazil and Indonesia.

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In the first week, the import duty was imposed on hot-rolled steel products, while a few days ago, the duty was enforced on certain cold-rolled flat steel products from different countries to protect the domestic industry from cheap imports.

In the first case, anti-dumping duties $474-557 per metric ton were imposed on hot-rolled flat products of alloy or non-alloy steel from China, Japan, South Korea, Russia, Brazil and Indonesia, according to a government notification.

Coiledsteel_585

Imports of coiled steel will be heavily tariffed in India, too. Source: iStock.

The duty will be in force for six months until February 7.

Hot-Rolled Duties

An anti-dumping duty of $474 per ton was imposed on import of hot-rolled flat products of alloy or non-alloy steel of a width up to 2,100 millimeter with a width up to 25 mm from Korea and Japan.

According to an Indian Express report Korean firms affected by this were Hyundai Steel Co. and POSCO. Three Japanese companies — JFE Steel Corp., Nippon Steel and Sumitomo Metal Corp. are also on the list. A similar anti-dumping duty was slapped on imports of similar products from China. Exporters Angang Steel Company Ltd. and Zhangjiagang were among the hardest hit. Imports of the same from Indonesia, Russia and Brazil attracted the $474 per mt duty. Read more

In a speech in Tampa, Fla., Wednesday afternoon, Republican Presidential Nominee Donald Trump outlined a seven-point plan to bring millions of jobs to the U.S. that involved labeling China a currency manipulator.

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He proposed renegotiating unconfirmed trade agreements such as the Trans-Pacific Partnership and told his audience he would pull the U.S. out of the North American Free Trade Agreement. In a first, Trump challenged China for “illegal activities” and vowed to label the country he did real estate business with a currency manipulator.

“I am going to instruct my Treasury Secretary to label China a currency manipulator,” he said. “Any country that devalues their currency in order to take unfair advantage of the United States — and all of its companies who can’t (then) compete —will face tariffs and to stop the cheating.”

Getting Tough With China

Trump also vowed to instruct the office of the U.S. Trade Representative to bring trade cases against China, both in this country and at the World Trade Organization. Read more

Another Chinese steelmaker, Bohai Steel Group, has been given a bailout and Japan’s Tokyo Steel Manufacturing has left prices unchanged for three months.

Bohai Bailout

Bohai Steel Group, the indebted state-owned conglomerate, may receive help from a local government bailout fund to restructure its debts, the online financial magazine Caixin said over the weekend.

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Bohai Steel, which was created in 2010 through the combination of four manufacturers, holds liabilities of $28.9 billion (192 billion CNY) from 105 creditors, alongside assets of nearly CNY 290 billion, Caixin reported.

The Tianjin government plans to create a local asset manager to assist in the debt workout of Bohai Steel, alongside other troubled Tianjin enterprises, the magazine said.

Restructuring of the group represented the biggest since the global financial crisis, Standard & Poor’s analyst Christopher Lee told Reuters in March.

Tokyo Steel Leaves Prices Unchanged

Tokyo Steel Manufacturing, Japan’s top electric arc furnace steelmaker, said on Monday it would keep product prices unchanged for the third month in September, reflecting a slow recovery in its local market.

Free Download: The August 2016 MMI Report

Tokyo Steel’s pricing strategy is closely watched by Asian rivals such as POSCO, Hyundai Steel Co. and Baosteel, which all export to Japan.

We rarely see such positive growth in metal prices as we did in the August MMI Price Trends Report.

MM-IndX_TRENDS_Chart_August2016_FNL-TOPVALUE100

All the metals we track were up save for Aluminum, which fell only 1.3%, and renewables and rare earths, which held flat. The Stainless Steel MMI increased 9% amid uncertainty about Chinese nickel ore supply after mining crackdowns in top supplier, the Philippines.

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Meanwhile, the most bullish of bull runs continued for our Global Precious MMI which added a 7.2% increase to its jump last month to knock on the door of the top 10% of the IndX. The platinum group metals had strong increases along with gold and silver this month.

Wall Street Bull

“Hey metal buyers, remember me?” Wall Street bull courtesy of iStock.

Palladium, particularly, made higher highs and stumbled to lower lows in classic bull market fashion.

So buy quickly before prices increase more, right? Wrong. Our Raw Steels MMI posted a healthy 4% increase, but it’s still heavily dependent on China’s stimulus programs to keep demand up in the largest global consumer of steel products. If there is a pullback in stimulus, prices could fall dramatically. The same is true for copper.

Unlike diamonds, bullish trends in commodities and industrial metals don’t last forever. Continue to make informed buying decisions in this thriving market — watch China’s stimulus program and the strength of the U.S. dollar post- Brexit — and remember that today’s price strength might be tomorrow’s carpet getting pulled out from under your feet.

Nickel, the main price driver of stainless steel, scored gains of 11% during the month of July causing our stainless MMI to surge by 9%.

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Industrial metals entered bull market territory earlier this year and that puts the wind behind nickel’s back. Apart from the more bullish macro environment, we are witnessing two key developments within nickel’s industry that are undoubtedly adding fuel to this rally.

Tighter Environmental Rules

The Philippines isn’t joking around about tightening its environmental rules. On the first of the month, the Philippines new President, Rodrigo Duterte, used some bold words against his country’s miners: “We will survive as a nation without you. Either you follow strictly government standards or you close down.”

Stainless_Chart_August-2016_FNL

The country has so far suspended the operations of seven domestic nickel mines for failure to comply with environmental regulations. Moreover, the new mining minister, Regina Lopez — a committed environmentalist — recently vowed to close more nickel mines causing environmental destruction.

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The Philippines is the biggest supplier of nickel ore to top consumer China since Indonesia banned shipments of unprocessed mineral ores back in 2014. The recent suspension of mines and the risk of more closures lifted nickel prices over the past few weeks.

Surge in Nickel Imports

Although the metal has benefited for the most part from a bull narrative of supply shortfall this year. The bulls are finding more reasons to bet on nickel amid growth in Chinese demand, which is being reflected in the surge in Chinese imports this year. Refined nickel imports in China have surged by 189% to a record 226,100 metric tons in the first half of the year.

What This Means For Metal Buyers

The Philippines is the top supplier of nickel ore to China and these new developments have sparked concerns about ore supply. Moreover, demand seems solid thanks to China’s stimulus measures. These two factors, combined with a bull sentiment across the industrial metals complex, have given buyers enough reason to take risk off the table as prices could continue to trend up.

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Our Raw Steels MMI rose by 2 points in July, thanks to the stabilization of Chinese steel prices. On the other hand, prices in U.S. remained flat for the second consecutive month as this year’s rally seems to be losing momentum.

Chinese Prices Up on Demand Growth

Chinese steel prices rose steeply earlier this year but we saw a correction start in late April. However, following the downward pressure, steel prices in China rose in July. Last month, stability in Chinese steel prices seemed to be driven by improved demand.

Raw-Steels_Chart_August-2016_FNL

The Caixin Manufacturing PMI in China rose to 50.6, way above June’s levels and that easily beat expectations. It’s the first time since 2015 that the index is in expansion (readings above 50) since February 2015. The country’s real estate indicators have also improved this year. This demand improvement seems driven by the fiscal and monetary stimulus provided by the Chinese government and markets expect China to announce more stimulus measures.

The demand side of the equation looks solid, assuming China provides more stimulus, but the supply side is still question mark:

China Not Cutting Capacity… Yet

China cut 13 million metric tons of excess crude steel capacity in the first half of the year, less than a third of its annual target. In June, China exported 10.9 million metric tons of steel, a 21% increase from June 2015 and the second highest total ever. The data raises questions on whether the demand growth is enough to absorb this much steel coming out of China without it weighing on prices.

However, China’s vice industry minister said in July that the country will step up efforts to cut capacity in the second half. The minister pointed out that the focus of their work in the first half was mission planning, and in the second half they will step up the implementation and enter a new stage, from allocating targets and drawing policies to actually pushing capacity cuts.

China’s second- (Baosteel) and sixth-largest (Wuhan Iron & Steel Co.) Chinese steelmakers said last month that they were planning on restructuring (merging) together. While the two state-owned enterprises (SOEs) didn’t provide any details on what that entailed, there are rumors that these companies may have been ordered by Beijing to take over all or a majority of the other amid a broader push to reduce the number of state-owned enterprises.

Rally in US Prices Cools Off

Meanwhile, in the U.S., prices struggled to build on previous gains. It’s still unknown whether this price stabilization is a market top or just a pause before domestic prices continue to climb. That will likely depend on what the world’s largest steel producer and consumer does in the second half. First, will China provide more stimulus and, therefore, more demand for steel? Second, will China actually cut that steel capacity it promised? Lots of things to watch for in the second half…

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While India’s Tata Steel’s effort to sell its U.K. assets enters its second round of bids, there’s some good news for the company from the other side of the Atlantic.

The provisional government of Quebec in Canada has decided to invest $133 million (C $175 million)  in Tata Steel’s iron ore project in the region between Quebec and Labrador.

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According to an announcement made by Tata Steel Minerals Canada (TSMC), the company’s Canadian subsidiary, it had been awarded the financial contribution to support the development of its Direct Shipping Ore (DSO) Project. The contribution included an equity stake of $95.72 million (C $125 million) through the Capital Mining Hydrocarbons Fund which supported mining activities in the northern region of Québec and a loan of $38.29 million (C $50 million) through Investment Québec.

Canada Supports Iron Ore

Analysts said the equity/loan assistance was aimed at fueling growth in the mining sector in the region and would also create jobs. TSMC, a joint venture, is developing the iron ore project in Quebec. Tata Steel holds a 94% stake in the JV while the remainder is held by the Toronto-listed New Millennium Corporation.

The DSO project involves mining, crushing, washing, screening and drying the run-of-mine ore, and is expected to produce 4.2 million tons of sinter fines and pellet feed a year.

The finished product will be transported to Sept-Îles, Québec, from where it will be shipped to Tata Steel Europe’s steelmaking facilities.

With the Canadian government’s equity infusion in TSMC, Tata Steel’s stake will come down though it’s not yet clear how much. The Quebec Government’s financial package is in line with a similar financial package proposal by the U.K. Government for Tata Steel’s Port Talbot operations, aimed at rescuing the British steel industry.

Port Talbot Still on the Block

Last week, CNBC TV 18 reported that Tata may keep the Port Talbot unit. Quoting unnamed sources, the report claimed Tata Steel is likely to sell off downstream units in Rostherham, Hartlepool and Stocksbridge, instead. Each of these operations have a 100-million-metric-ton production capacity and together employ about 3,000 workers. Management buyout firm Excalibur and Indian-origin businessman Sanjeev Gupta’s Liberty House are said to be in the fray for the assets of the other operations.

Free Download: The July 2016 MMI Report

Tata had written down the value of its U.K. steel assets to almost zero and was also exploring a merger of its European business — including its profitable assets in the Netherlands — with German peer ThyssenKrupp.

The Commerce Department said construction spending declined 0.6% to its lowest level since June 2015 after dipping 0.1% in May. June marked the third straight month of declines in outlays.

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Economists polled by Reuters had forecast construction spending increasing 0.5% in June after a previously reported 0.8% drop in May. Their June estimates were largely based on the government’s assumptions for private residential and nonresidential construction spending in the advance GDP report.

Construction_Chart_August_2016_FNL

Weak nonresidential spending and a pullback in home building were credited for the drop. Our Construction MMI still increased from 66 to 67 this month, largely based on jumps in still-in-demand steel products such as rebar and H-beams. Those prices made up for steep drops elsewhere to eke out the 1.5% increase.

However, weak U.S. economic growth seems to have finally hit the construction industry, previously a bright spot of the U.S. economy. A third straight month of declining construction spending will certainly be reflected soon in overall purchasing.

“It’s a deceleration process after two years of fairly decent growth,” Robert Murray, chief economist of Dodge Data & Analytics, told Reuters.

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The slowdown can be seen in construction payrolls. Adjusted for seasonal fluctuations, the number of people working in construction has dropped by 22,000 since hitting a post-recession peak in March of about 6.7 million.

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American Iron and Steel Institute President and CEO Thomas Gibson said in a recent media conference call that the U.S. and other nations continue to experience economic impacts from the Chinese steel oversupply largely produced by China’s state-sponsored companies. He said policymakers must address the “root cause” of the problem.

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“We believe that the Chinese government has to get out of the steel business,” Gibson said, “and let its steel industry operate according to market principles.”

Gibson spoke July 13 on a conference call with the press.

In 2015, China’s production of crude steel fell 2.3% from 2014, according to the World Steel Association, but its share of the world’s production grew slightly to 49.5%. Gibson said China’s oversupply of steel reached 112 million metric tons in 2015 and added that some reports estimated excess production would increase this year. U.S. steel companies’ production fell 10.5% last year and approximately 10% of the workforce has been laid off.

Gibson said that nine of the 10 largest steel producers in China are state-owned. While these firms may be selling steel at a loss, China is directing state-owned banks to “continually refinance the debt” and also sweep the debts off the books and this is what’s keeping “zombie mills” open.

In an effort to address declining domestic demand, China announced that it would reduce steel production as much as 150 mmt over the next five years. Gibson said these promises are often empty as China made similar commitments in the past and “each time capacity has actually increased in China.”

Speaking a day after the press phone call to the Senate Banking Committee, Gibson said, “the surge in imports is a result of foreign government interventionist policies that have fueled global overcapacity in steel, more than half of which is located in China… While China is not the only source of the problem, the overcapacity in China is the greatest challenge facing the global steel industry today.”

Free Download: The July 2016 MMI Report

Gibson said China’s major steel firms reportedly lost more than $15.5 billion last year while still producing so much excess steel.

Heavy-walled, rectangular carbon steel pipes are used mainly as structural members in construction. The Commerce Department recently affirmed earlier preliminary anti-dumping duties on pipe imports from Turkey, Mexico and the Republic of Korea.

The U.S. construction market has remained strong this this year with home construction posting strong gains this summer and low-cost imports of structural pipe have certainly helped general contractors’ bottom lines.

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Most of the anti-dumping duties for providers in South Korea and Mexico came in at less than 5.5%, but Turkey was the big importing loser with some of its steel companies hit with duties between 36 and 15%, although one Turkish steelmaker was found not to have dumped at all.

rectangular welded steel pipes on painting work

Welded, structural carbon steel pipes are a mainstay of construction but new tariffs will increase the price of of imports from Mexico, Turkey and the Republic of Korea. Source: Adobe Stock/Artzenter.

Republic of Korea

Commerce found dumping has occurred by mandatory Korean respondents Dong-A Steel Co. and HiSteel Co. Ltd. at dumping margins of 2.34% and 3.82%, respectively. All other producers/exporters in Korea will incur a final dumping margin of 3.24%. Read more