Ferrous Metals

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.”

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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

The United Nations Environmental Program predicted that between 2007 and 2020, the amount of e-waste exported to India will jump by as much as 500%, and between 200% and 400% in South Africa and China.

Free Download: The July 2016 MMI Report

E-waste is an informal name for electronic products nearing the end of their “useful life.” Computers, televisions, VCRs, stereos, copiers, and fax machines are common e-waste products. Processing and recycling them is proving to be a major challenge for Indian authorities. To add to the export of e-waste, recent studies have revealed that about 1.8 million metric tons of e-waste are being generated within India, itself, annually. That figure is likely to climb to 5.2 mmt by 2020 at the predicted annual compounded rate of 30%. But only about 2.5% of this e-waste gets recycled, experts say.

E-waste figured in a major way on the agenda of a huge convention on non-ferrous minerals and metals in India’s steel city of Jamshedpur, last week. The delegates deliberated the challenges posed by the non-ferrous industry including the generation of e-waste. Read more

Six little letters have dominated the political and economic news cycle over the past month or so: BREXIT. While the long-term effects of Britain’s vote to exit the European Union won’t be felt for awhile, the surprising result has already roiled global markets, including commodities in general and metals specifically.

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Our biggest winner of the Monthly MMI series, the Global Precious Metals MMI, gained the most from June to July, primarily driven by gold prices (themselves driven by near-term investor moves over to safe-haven assets brought on by the Brexit vote).

MM-IndX_TRENDS_Chart_July2016_FNL-TOPVALUE100

Some have indirect Brexit connections, such as our Renewables MMI and the consequences of the U.K. announcing it won’t make E.U. 2020 climate reduction goals… which it won’t need to if it completes its exit before 2020 (likely). Others, like our GOES MMI, were not affected at all.

The value of the U.S. dollar, China’s import/export activity, and international trade cases (especially those in the ferrous realm should continue to be watched by industrial metal buyers during these dog days of summer. However, we wish our British colleagues well in these politically uncertain times and offer our recent webinar to help them navigate the newly choppy purchasing waters.

The GOES M3 spot index reading fell for the fourth month in a row to 181 from 191. Contract buyers may have already begun to see a $200-per-metric-ton increase in prices from a year ago, according to a recent TEX report due to domestic mill closures.

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The recent Brexit decision has also created complications for grain-oriented electrical steel markets both from the demand as well as the supply side. First, the supply side: Tata Steel’s precarious Port Talbot, South Wales operation in the U.K. that was destined for sale and then for a bailout remains in limbo. As previously reported by MetalMiner, the British government insists that its equity and pension support remain on the table. The Port Talbot operation produces grain-oriented electrical sheet at the Orb works in Newport, South Wales.

GOES_Chart_July_2016_FNL

An acquisition now, with Port Talbot lacking free and open access to the European single market, may have dimmed the operation’s prospects. My colleague Stuart Burns speculated that merely the prospect of higher export tariffs for the U.K .producer would make any potential bidder skittish.

Meanwhile, Baosteel and Wuhan Iron & Steel unveiled a potential mega-merger creating the largest steel producer in Mainland China. Baosteel is a leader in GOES production within China for standard grades. This merger would likely not impact GOES production in any meaningful way.

On the demand side, Siemens announced it would hold off from making any investment in wind power in the U.K. until the E.U.-U.K. trading relationship becomes clearer. That move will contribute to the U.K. failing to meet the E.U.’s 2020 15% requirement that energy consumption come from renewable sources.

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The crux of Brexit, from an energy perspective, comes down to investments. Will projects move elsewhere? Will businesses such as Siemens stall decision-making, impacting demand until the U.K. devises a clear Brexit strategy?

From a metal price perspective, it doesn’t appear as though Brexit will have much if any impact on GOES pricing. Certainly July’s price performance follows a similar price trajectory.

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Our Raw Steels MMI fell from 56 to 55 in July.

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U.S. steel prices have had a spectacular run this year, mostly attributable to trade cases as the U.S. steel industry has turned into a virtual island, creating a divergence between domestic and global steel prices. That was the case during the first half of the year but nothing guarantees that this trend will continue in the longer term.

Prices In China Fall

In the first half of the year, prices for hot-rolled coil in U.S. have risen over 70%. Although trade cases are what helped U.S. steel prices the most, the domestic rally was also supported by rising steel prices in China.

Investors’ sentiment in the steel industry improved this year as China’s stimulus measures made an impact on steel demand. Also, the world’s biggest steel producer vowed to cut production capacity by 45 million metric tons this year and 100-150 mmt over the next three to five years. This combination of demand and supply measures boosted sentiment in the steel industry and prices in China increased.

But as time goes on, China is failing to meet its promises. China produced more steel than the rest of the world combined in May. According to the World Steel Association, China produced 70.5 mmt of crude steel products in May, up 1.8% from the levels of a year earlier and just shy of the record 70.65 mmt level hit in March 2016.

Raw-Steels_Chart_July-2016_FNL

On top of that, demand doesn’t seem to be offsetting rising production. Exports keep rising. In May, China exported 9.4 mmt of steel, a 2.3% increase compared with a year earlier. For the first five months of the year, exports are up 6.4%. Given these numbers, 2016 could turn out as another record year for Chinese steel exports.

The continued growth of these figures worries steel investors. That is being reflected in the price action. Hot-rolled coil prices in China have fallen more than 20% from their April peak and the decline could be even more severe if Beijing doesn’t come through with more mini-stimulus in the second half.

US Steel Prices Flatten

The decline seen in Chinese steel prices haven’t hit domestic prices, at least not yet, but could be pointing to some domestic price turbulence in the second half.

Indeed, over the past few weeks the rally in U.S. steel prices has lost some steam, keeping domestic steel prices pretty much flat in June.

Falling U.S. steel imports caused prices to rally this year. However, the rate of decline last month was the lowest in 10 months. In fact, absolute import levels have increased on a monthly basis since February. An increase in steel imports later this year serves as one of the biggest risks facing U.S. steelmakers, considering the current price gap between domestic and international prices.

Should service centers come back into the market and restock with imports, domestic mills may see some price pressure. If prices in China continue to decline, this is something that steel buyers should watch.

Finally, steel stock values have also lost traction. Domestic steel prices directly impact the stock prices of steel producers in the U.S. Since May, we have witnessed investors’ enthusiasm for these companies vanish. This is an early sign that domestic steel prices could suffer a correction.

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To conclude: Domestic steel prices haven’t shown signs of weakness, but this rally seems overextended and prices might struggle to build on their gains if international prices continue to fall.

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Three major German automakers are being investigated by regulators for participating in a steel purchasing cartel. U.S. Shale firms increased their hedging this year to try to offset low oil prices.

VW, BMW, Mercedes Investigated

Volkswagen AG, BMW AG, Daimler AG (Mercedes-Benz) and Robert Bosch GmbH were among six companies raided by Germany’s antitrust regulator in June in a probe of steel purchasing by the auto industry.

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There are indications that antitrust rules may have been violated, and the raids were conducted to investigate the facts, Kay Weidner, spokesman for the Federal Cartel Office, said in an e-mailed statement to Bloomberg News on Tuesday. He declined to identify any company.

BMW, VW, Daimler, Bosch and ZF Friedrichshafen AG confirmed that they were raided and said they are supporting the investigations.

Automakers are one the major pillars of the German economy, and steel is a key component for auto companies.

US Shale Firms Increased Hedging as Oil Prices Fell

As oil prices began recovering from 13-year lows early this year, U.S. shale producers ramped up their hedges against another slump on a scale unseen for at least a year, a Reuters analysis of company disclosures shows.

Free Download: The June 2016 MMI Report

A review of disclosures by the largest 30 U.S. shale firms showed 17 of them increased their hedge books in the first quarter, the most at least since early 2015.

A recent article in Engineering News-Record, examined new trends in building materials. One of them was new uses for cross-laminated timber combined with metals.

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“For us, right now, the real exciting stuff is in the mixing of materials,” Charlie Carter, American Institute of Steel Construction vice president and chief structural engineer, told ENR. “Steel has always done that, of course. A big innovation in mixing materials that I see coming is the wood industry pushing cross-laminated timber.”

Steel Moment Resisting Frame with CLT infill wall. Illustration courtesy of Earthquake Spectra.

Steel Moment Resisting Frame with CLT infill wall. Illustration courtesy of Earthquake Spectra.

Putting wooden CLT panels into a steel moment resisting frame, then putting them both on a concrete topping, is becoming  very competitive with a typical flat-plate concrete standard floor, according to ENR.

The hybrid system combines ductile behavior of the steel moment frame with lighter and stiffer CLT panels. Like many recent innovations in building materials, hybrid  CLT/SMRF systems were driven by green building codes.

In major Canadian cities, to meet urban housing demand using renewable materials, tall wood-based buildings are increasingly considered. In 2009, the British Columbia Building Code was amended to increase light wood-frame buildings heights from four to six stories.

Free Download: The June 2016 MMI Report

This article in the journal Earthquake Spectra further explains how the CLT/SMRF system can satisfy the seismic compliance requirements of building codes while still qualifying as a sustainable building material.

The decision by a majority of U.K. citizens to leave the European Union (E.U.) has injected a note of worry in business circles in faraway India, one of Great Britain’s former colonies and a nation that trades more than India Pale Ale with it.

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Especially worried are India’s steel and automobile sectors. The anxiety stems from the fact that the U.K. was always seen as an attractive business entry point to the rest of the E.U. It’s favorable tax regime was the other positive factor that encouraged trade between the two nations.

Tata Steel’s Conundrum

But now, with the referendum over, trade bodies such as the Federation of Indian Chambers of Commerce and Industry (FICCI) feel that Brexit could create a lot of uncertainty for India, Inc. After all, Indian companies are the third-largest source of foreign direct investment in the U.K.

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

Tata’s steel plant at Port Talbot in South Wales, U.K., could close if Tata Steel can’t find a buyer. Source: Adobe Stock/Petert2

Take Tata Steel for example, the company’s steel products enjoyed free trade with other European countries because Britain was part of the E.U. Now, depending on what type of deal is struck with its former E.U. cohorts, that status will likely be gone, leaving Tata Steel negatively impacted. Not only will it hurt the division’s exports, but it also complicates proposed sale of its U.K. plants. Read more

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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