iron ore price

The monthly Raw Steels MMI® registered a value of 52 in September, a decrease of 5.4% from 55 in August.

Raw-Steels__September-2015In July, it seemed like steel prices were stabilizing for awhile, but prices fell again last month. The decline wasn’t as bad as it could have been, considering that last month China’s stock market sell-off continued and some industrial metals took serious hits.

The bearish commodity environment makes it hard to pick a bottom, proving once again that buying on weakness hasn’t been the best strategy for metal buyers during this market cycle.

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The Real Steel Story

Fundamentally, the steel story is similar to other base metals and can be summarized as: a glut of raw materials everywhere and weak demand unable to keep the market in balance, with China being the main driver on both sides of the equation.

With imports into the US still high, it’s no wonder that US steelmakers keep fighting against the flood of imports. In August, new anti-dumping petitions were filled for HRC and CRC products. The petitioners are the usual group of US producers that have long said that foreign steel imports are subsidized by overseas governments in complete violation of US anti-dumping law. When it comes to price direction, we don’t see these anti-dumping petitions having that much impact.

Demand Side Drivers… Of Cars

The demand picture is mixed and not encouraging:

The car industry seems strong in the US with August numbers showing that it is on track to record one of its best sales years since 2000. On the other hand, the latest Chinese automotive numbers turned out to be even weaker than expected. Chinese auto sales fell by 7.10% in July 2015 compared to July 2014, the largest fall since February 2013.

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While construction activity is strong in the US and Europe, emerging markets and China continue to drag down prices and overproduction of materials for export is actually exacerbating oversupply.

Crude oil fell again in August, with prices sliding as low as $38/barrel. Low energy prices will continue to hurt the energy industry, therefore lowering demand for steel.

What This Means For Metal Buyers

Prices remain weak and it seems clear that there is little going on in the market that could push steel prices up this year. Placing long-term purchases while markets keep falling is not a good strategy. With prices declining at a fast pace, it’s very important for steel buyers to keep an eye on the market and be ready when market sentiment shifts.

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The monthly Raw Steels MMI® registered a value of 55 in August, a decrease of 1.8% from 56 in July.

Raw-Steels_Chart_August-2015_FNL

After Chinese steel prices slumped in July, they fell again in August but were at least more stable. Domestic prices remain low but seem to be stabilizing as well, resulting in our raw steels index dropping by less than 2%. That’s a moral victory for steel these days.

Paring the Decline

This was definitely a small decline compared to what we have seen from other industrial metals last month. Aluminum and copper hit 6-year lows. Not only was July a bad month for base metals, it was also bad for any commodity. Gold and oil prices fell 7% and 22%, respectively. With all these declines, the Thomson Reuters/Jefferies CRB Index hit new lows last month.

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Apart from this macro commodity weakness, the fundamentals within the steel industry don’t look much better. Chinese demand seems to be getting worse. Construction data shows that demand from the sector has slowed during this first half. Also, the automotive sector is weakening with vehicle sales falling year-on-year for several months.

Weak Overseas Demand Creates More Imports

On top of the weak demand, a strong dollar has made exchange rates attractive for exporters. Export products raised almost 28% in the first half of 2015 compared to the same period in 2014. The increase in exports keeps hurting US producers who last week filed petitions with the Commerce Dept. and the US International Trade Commission against 8 countries the domestic industry believes are receiving illegal government subsidies and “dumping” flat cold-rolled coil products here.

3 Best Practices for Buying Commodities

It seems clear that there is little going on in the market that could push steel prices up this year. But this is not about what could make steel prices rise, the question is more like: When will the market think prices have fallen enough? So far, we haven’t seen a shift in market sentiment but that is something that steel buyers might want to pay attention to. Until that happens, it seems risky to buy forward when everything is falling.

Actual Raw Steels Prices

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The Raw Steels MMI® collects and weights 13 global steel and raw material price points to provide a unique view into global steel price trends over a 30-day period. For more information on the Raw Steels MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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The Construction MMI® fell again in July, despite strong US non-residential construction and accelerating growth in Europe.

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Metals and energy commodities, such as oil and liquid natural gas, continue to fall on international indexes mostly due to the weak economy and lax demand in China, the world’s second-largest economy. The recent volatility in Chinese stock markets shows no sign of abating.

Construction_Chart_August_2015_FNL

The private Caixin/Markit manufacturing purchasing managers’ index (PMI) for China dropped to 47.8 in July from 49.4 in the previous month.

Chinese Economy Still Falling

It is worse than a preliminary reading of 48.2 and is the fifth consecutive month of contraction in the sector. With falling demand in such a large market, it is difficult to foresee a turnaround in the metals that make up our index. The Construction MMI® registered a value of 72 in August, a decrease of 2.7% from 74 in July.

While construction activity is strong in the US and Europe, emerging markets and China continue to drag down prices and overproduction of materials for export is actually exacerbating oversupply.

Try Not to Catch Falling Knives

The oversupply in aluminum, in particular, is worsening. Alcoa, Inc., recently raised its forecast for the global aluminum surplus, expecting a surplus of 760,000 metric tons this year which is almost double Alcoa’s previous forecast.

Three Best Practices for Buying Commodities

It remains a good time to be a buyer with double-digit declines in fuel surcharges and lower prices across the board for all construction products including rebar and H beams tracked in the index. With the price of oil back below $50 a barrel we are likely to continue to see falling US fuel surcharges and lower cost transportation and shipping charges.

Construction purchasing in the US is now a waiting game as estimators and project executives questions become some version of “how long do I wait before buying” to achieve a truly low price before markets bottom out, rather than how quickly to purchase to avoid non-existent price spikes.

The Construction MMI® collects and weights 9 metal price points used within the construction industry to provide a unique view into construction industry price trends over a 30-day period. For more information on the Construction MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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While domestic prices remained stable in June, Chinese steel prices plunged with its stock market. Also, the non-liquid London Metal Exchange steel billet contract fell sharply, weighing on our index.

Free Download: The July Metal Price Forecast

The monthly Raw Steels MMI® registered a value of 56 in July, a decrease of 5.1% from 59 in June.

Raw-Steels_Chart_July-2015_FNL

Chinese Market Reeling

Chinese steel prices are at their lowest level in more than 20 years. Chinese demand seems to be getting worse and industry analysts point out that the fall might not even be close to an end. This threatens the survival of smaller Chinese steelmakers, who are still reluctant to cut production in order to maintain cash flow and bank credit, while other small mills have already shut down.

Construction data shows that demand from the sector has slowed during this first half. Moreover, China’s demand for steel could take a further hit as construction eases over the summer.

Finally, China’s recent stock market turmoil is adding more doubts about its economy. This is definitely not good for steel prices and other industrial metals which we’ve seen falling sharply this month.

What This Means For Metal Buyers

Domestic prices have sort of stabilized over the past couple of months. However, the sharp decline of Chinese steel prices could keep putting pressure on US prices, especially under the bearish commodity environment we are in.

Free Download: Compare With the June MMI Report

The Raw Steels MMI® collects and weights 13 global steel and raw material price points to provide a unique view into global steel price trends over a 30-day period. For more information on the Raw Steels MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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Our construction metals index fell slightly this month despite strong US housing demand and generally good employment numbers.

The monthly Construction MMI® registered a value of 74 in July, a decrease of 1.3% from 75 in June.

Construction_Chart_July_2015_FNL

The drop was mainly driven by hefty price hits to Chinese rebar and H-beam steel – yet the dip was spared from going lower by a more than 10% spike in the US shredded scrap price.

The construction sector neither lost nor gained jobs in June, according to the Bureau of Labor Statistics, and the Commerce Department said permits to build new homes surged 12% in April to an annual rate of 1.275 million, the highest since August 2007. Permits for apartment construction were the breakout leader, while permits for single-family homes, a much broader segment, still rose modestly.

Homebuilders Bullish

Confidence among US homebuilders, as measured by the National Association of Home Builders’ index, rose to its highest level in 9 months in June, so all signs point to a strong building season domestically.

Meanwhile, the developing world isn’t exactly holding its part of the construction spending deal up. A recent World Bank report detailed how China’s state-run banking sector is creating debt while not delivering on the construction stimulus promises Beijing has made. With Brazil still mired in recession and Russian construction limited to heavy pipeline work, the BRICS countries are not developing at the rates they earlier envisioned.

Oil & Gas Demand Up

Demand for oil and gas products such as steel tubes has rebounded domestically as the US passed Russia this month as the world’s top natural gas producer. Baker Hughes reported that the rig count for US oil producers increased for the first time this year, despite massive output by Saudi Arabia and other OPEC countries trying to undercut US producers’ prices. It was the first weekly increase in 30 weeks.

Actual Construction Material Prices

Construction purchasing remains on the cusp of what could be a breakout, but both lending and a shortage of skilled labor remain major concerns.

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The price of Chinese rebar fell 7.4% to $341.39 per metric ton. At $368.77 per metric ton, Chinese H-beam steel was down 6.9% for the month. Weekly US Midwest bar fuel surcharge prices fell 4.6% to $0.30 per mile after rising the previous month. After rising the previous month, weekly US Gulf Coast bar fuel surcharge prices dropped 4.3% to $0.30 per mile. A 3.8% drop over the past month left Chinese aluminum bar at $2,134 per metric ton. Weekly US Rocky Mountain bar fuel surcharge prices fell 3.6% to $0.31 per mile after rising the previous month. After rising the previous month, European 1050 aluminum prices dropped 0.4% to $2,907 per metric ton.

The price of US shredded scrap rose 10.2% over the past month to $280.00 per short ton.

Last month was consistent for the Chinese low price of 62% Australian iron ore fines, which did not move from $77.30 per dry metric ton.

This September: SMU Steel Summit 2015

The Construction MMI® collects and weights 9 metal price points used within the construction industry to provide a unique view into construction industry price trends over a 30-day period. For more information on the Construction MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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The price forecast for US steel markets, much like me after contracting salmonella poisoning last week, has been quite lethargic lately.

An imminent pullout from the doldrums doesn’t look all too likely due to several major factors, which we’ll dive into shortly, and is supported by MetalMiner’s monthly Raw Steels MMI® clocking in with a value of 59 in June, a 1.7% drop from 60 in May.

steel price index chart june 2015

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The monthly Raw Steels MMI® – a price sub-index tracking a basket of finished steel and raw material prices from all corners of the globe – has been unhealthy for quite a while, and (after undergoing a slight recalibration at the end of 2014) has hit a new all-time low this month. Why?

Today’s Steel Market: Some Factoids to Consider

Here are a few elements to take into account:

  • Imports are a huge issue for the US domestic market. According to the American Iron and Steel Institute (AISI), for the first 5 months of 2015 (including May Steel Import Monitoring and Analysis and April preliminary data), total and finished steel imports were 18,636,000 net tons and 15,365,000 net tons, respectively, up 7% and 20% from the same period in 2014. China plays an outsize role in this: according to data compiled by James May of Steel-Insight.com, Chinese supply of CRC was 6% of the US market in 2014 while Chinese and Indian supply of HDG was a combined 8%. Construction markets in China have stagnated, and rather than shutter mill capacity, the Chinese just ship it out to foreign shores. Ministry of Commerce spokesman Shen Danyang has been quoted as taking a defensive line, saying the rise in steel exports is due to higher global demand and is a result of Chinese steel products having strong “export competitiveness” – but we have our doubts.
  • Therefore, capacity has been dinged. According to AISI, adjusted year-to-date steel production through May 16, 2015 was 33,210,000 net tons, at a capability utilization rate of 72.3%. That is down 7.2%from the same period last year, when the capacity utilization rate was 77%.
  • Distributors are well-stocked with inventory. Until inventories (which are nicely loaded with that imported steel we mentioned) are drawn down, it will be hard to make price increases stick in the near term.
Steel_Insight_051515_550

Carbon flat-rolled inventories. Values in millions of tons (add 000 to the end of each number on the chart). Source: MSCI, Steel-Insight. Chart courtesy of Steel-Insight.

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Tomorrow’s Steel Prices: Wild Cards to Watch

  • Anti-dumping filings may help steel prices – but “may” being the operative word, and if so, only in the short term. Filings against imported Chinese coil products may succeed in removing some of that low-priced steel from the US inventory pool, thereby helping US mill volumes, but again, from what we’re hearing, that’s simply a temporary “Band-Aid” solution.
  • What will happen with scrap pricing? As part of this month’s Raw Steels MMI®, our shredded scrap price rose 1.6% over last month, and is in a 3-month uptrend. According to industry sources, scrap is expected to rise anywhere from $10 to as much as $30 per gross ton, depending on the region and product. We’ll have to wait and see where prices end up by the end of June, as that may clue us further into where finished steel pricing is headed.
  • And a last longer-term bit of news from China…An announcement made at the recent Singapore Iron Ore Week, hailed by some as a gamechanger, indicated that steps are being taken toward international trader/broker access to Dalian iron ore. If this indeed goes down, it would signal a big move toward internationalization of China’s futures markets.

Steel Price Outlook: HRC, CRC, HDG, Plate

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The US price of hot-rolled steel coil (HRC) has recently bumped up near the end of May on our IndX, which indicates more broadly that HRC, as well as CRC and HDG steel, seem to be stabilizing after falling for over a year. However, it seems early to call for a bottom. While commodity markets remain bearish and the dollar holds, we don’t expect HRC, CRC or HDG prices to make significant upside moves.

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We here at MetalMiner have very cautiously been pointing out the underlying strength of the US construction market and have been dutifully chalking up falling and flat Construction MMI® numbers to low oil prices and cautious banks for nearly a year now.

Construction_Chart_June_2015_FNL

The monthly Construction MMI® registered a value of 75 in June, an increase of 1.4% from 74 in May, not gangbusters construction activity by any stretch of the imagination but perhaps the beginning of a break in the down-to-flat trend the market has been mired in since last year.

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There are several good reasons to believe this is a turning point in the price of construction materials such as H-beams, steel rebar and shredded scrap. Reasons that go far beyond our belief that a bad weather, higher break-even points for energy projects and a lack of willingness from lenders are what has held them back thus far.

First, in April construction spending jumped 2.2% to an annual rate of $1 trillion, the highest level since November 2008, the Commerce Department said on Monday. The percentage increase was the largest since May 2012. March’s outlays were revised to show a 0.5% increase instead of the previously reported 0.6% fall. Economists polled by Reuters had forecast construction spending rising 0.7% in April.

Oil as Fuel and as Project Breaker

With spending on construction up and beating expectations, it’s reasonable to expect prices to follow, but that’s not the only indicator of a strong summer building season. My colleague, Stuart Burns, wrote this week that, at least in the US, oil prices are actually going up and inventories are falling.

“For the first time in six months,” Burns wrote, “the US oil market is flirting with backwardation, where the spot price is higher than one- or three-month dated delivery – a sign of a tightening market and, potentially, a shortage.”

According to another report, prompt-month July contract for West Texas Intermediate (WTI) crude was 27 cents lower than second-month August this week. That was the narrowest spread since Dec. 19 and compares to a month ago when it was at a $1.50 discount. While prices at the pump are still reasonable, the

Beyond that, the oil and gas industry has come out of this mini-slump leaner and meaner. A Goldman Sachs report said that US oil production will grow by 155,000 barrels per day in the fourth quarter of 2015 compared with the same period in 2014 as cheap money and more efficient drilling technology allows tight oil producers to continue drilling in spite of OPEC’s best efforts to close them down.

According to the American Petroleum Institute, investments in updating US energy infrastructure alone could generate an estimated $1.14 trillion in capital investments by 2025.

Construction Materials

The cost of construction materials, overall, is poised for an increase. This includes wood and other non-metal construction inputs.

According to the 2015 Q2 Non-Residential Construction Index (NRCI) Report recently released by FMI Corporation, the construction industry is improving despite lukewarm economic conditions. FMI surveys executives at construction companies for their forecasts and, according to the responses, the index component for the cost of construction materials dropped one point to 21.4. The component drops as prices increase. The cost of labor components dropped sharply by 5.2 points to 12.5. Both labor and material cost increases reduced the overall NRCI score. Despite this, the overall score STILL gained, jumping to 64.9 for the quarter.

That score reflects 18 months of improving activity.

“It was a little bit surprising, I would expect them (construction materials) to go up faster,” said Phil Warner, research consultant at FMI. “One of my explanations (for the first half of the year) has been substitution. Copper and other materials, where they can be replaced, have been substituted. We are at a point now where prices are so low that I would expect substitution to end and construction-grade materials (metals) to go up faster. We certainly don’t expect them to go down as construction will continue rising. Materials are coming around. They will remain at a lower-cost as construction, overall, improves but we likely won’t see them falling further.”

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Steel prices remain at their lowest levels. Almost every industrial metal price rose in April as a weaker dollar gave a boost to commodity markets. However, steel prices remained quiet, hanging at record lows.

The monthly raw steels MMI® registered a value of 60 in May, on par with April’s value.

Raw Materials Undercutting Scrap

Scrap prices are at their lowest levels and we don’t really see anything that could give prices significant momentum on the upside, at least until a bigger supply response is seen.

Why Manufacturers Need to Ditch Purchase Price Variance

Unless we start seeing the dollar depreciate against other currencies, European scrap exports will keep gaining market share, leaving a supply excess for US steelmakers.

Cheaper to Produce

Moreover, although prices seem low, it’s still cheaper to make steel still using iron ore than scrap. Pig iron or billet could substitute some scrap as primary raw material in which case, US exporters would sell more in the domestic market, causing US scrap prices to keep falling lower.

Meanwhile, steel imports keep arriving. Since US prices are no longer inflated compared to the rest of the world ,we would imagine steel imports to start slowing down through the remainder of the year. However, Chinese exports could actually increase due to the recent removal of export tariffs.

Either way, steel demand remains weak, particularly in oil and gas tubular markets while the market remains oversupplied. It doesn’t seem likely that steel prices will rise significantly higher this year.

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Outlays for US construction projects fell 0.6% in March to a seasonally adjusted annual rate of $967 billion, the US Commerce Department said last week. Commerce also revised February’s result to show almost no change.

Why Manufacturers Need to Ditch Purchase Price Variance

Despite the lower spending, the monthly Construction MMI® registered a value of 74 in May, on par with April’s value. Flat is, apparently, the new up until construction starts and spending pick up some steam. The low prices have not yet incentivized developers enough, it would seem, to sign off on new projects or increase purchasing for anything but stockpiling, as credit is still hard to obtain and consumer demand for commercial and residential space remain tepid.

Energy Loans Called In

In fact, banks in the US are cutting credit lines to energy companies and forcing the firms to cough up more collateral to guard against fallout from the fall in oil prices.

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The US International Trade Commission upheld tariffs against both rebar and, more recently, oil country tubular goods (OCTG) from China, but the flood of imports has already done its damage when it comes to both traditional construction and the steel pipes used for oil and gas drilling. Supply is high and demand is simply not high enough to push prices upward.

It’s a testament to the resilience of the US construction market that our MMI was even able to hold steady this month. For complete prices, read the complete story – log in or sign up for MetalMiner membership!

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Today in MetalCrawler, the sleepy iron ore market was jolted to life. Is it a shift from the bearish trends we’ve seen lately? Only time will tell.

BHP Dials Back Mining Expansion

Iron ore advanced after BHP Billiton Ltd. curbed expansion plans and supplies from higher-cost mines dropped, easing concern that global output will outpace demand and feed a global glut. Miners’ shares jumped.

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Ore with 62% content at Qingdao, China, rose 5.5% to $57.81 a metric ton early today, its highest since March 16. Benchmark iron ore is still 60% below the peak of $144.18 reached in August 2013. Visit our MetalMiner Indx for the latest prices.

Exports Fall For the Quarter

The Sydney Morning Herald’s Peter Ker writes that the week’s iron ore moves could have a major impact on markets if other producers follow BHP’s lead and constrain supply. Across Rio Tinto Group, Vale SA, Fortescue Metals Group, Arrium Limited, Mt. Gibson Iron and Grange Resources, exports were more than 19 million mt lower this quarter than in the December quarter, raising questions about why the iron ore price has fallen 28% during a period of supply weakness.