Today, the Commerce Department announced its affirmative preliminary determinations in the countervailing duty investigations of imports of cold-rolled steel flat products from Brazil, China, India, and Russia, and its negative preliminary determination in the CVD investigation of imports of cold-rolled steel flat products from South Korea.
The investigations cover cold-rolled, flat-rolled steel products. It should come as no surprise that the largest subsidies are being assigned to Chinese importers.
Chinese Imports Take a Hit
In the China investigation, Commerce preliminarily determined that mandatory respondents Angang Group Hong Kong Co., Ltd. and Benxi Iron and Steel (Group) Special Steel Co., Ltd. and, a non-cooperative exporter — Commerce’s term for companies that do not respond to requests for information in the investigation — Qian’an Golden Point Trading Co., Ltd., received whopping subsidy rates of 227.29%.
Imports of cold-rolled steel from the China, Brazil Russia and India will now have countervailing duties collected upon import into the US. Source: Adobe Stock/icarmen13.
All other exporters of cold-rolled steel flat products from China will be subject to that same subsidy rate of 227.29%. The rates are based on adverse facts available. Commerce determined that the Government of the People’s Republic of China, and the mandatory respondents, did not fully cooperate in the investigation.
United States Steel Corporation’s CEO Mario Longhi made the media rounds recently, evangelizing U.S. Steel’s – and most of the domestic industry’s – key plank in their policy platform: creating a globally fair playing field when it comes to international trade.
He showed up on Maria Bartiromo’s show, denouncing unfair subsidies in foreign economies and tariffs on certain US imports into countries such as China.
Screenshot from video of Maria Bartiromo’s interview with Mario Longhi. Source: Fox Business.
He also spoke to Politico about the granting of “market economy” status to China next year, which would change how the Commerce Department determines anti-dumping duties on Chinese goods, including steel.
As you may know, China is pushing a bunch of steel beyond its borders. As my colleague Stuart Burns reports, while China’s steel production may have dropped, its exports have risen. In the first 8 months of this year, product exports reached 71.87 million metric tons, up 26.5% compared to the same period of 2014.
In fact, the China Iron and Steel Association’s vice chairman is quoted as saying that this year, the country will export more than 100 mmt of steel – that’s equivalent to more than the entire production of North America. Or nearly as much, purely in exports, as the next largest producer, Japan, produces both for domestic and export combined, according to Burns.
Correnti, 68, was chairman, founder and chief executive officer of Big River Steel LLC and was in Chicago for a board meeting of Navistar International Corp., the company said in a statement. The cause of death was not immediately provided.
Correnti was leading Big River Steel to build a $1.3 billion mill in Osceola, Ark., near the Mississippi River. The facility is planned to supply high-quality steel products to customers including automakers and energy companies.
Correnti served as CEO of Nucor Corp. from 1996 to 1999 and helped move the US steel industry away from its regional roots by expanding its reach to the South. Correnti also opened a steel mill for Severstal in Mississippi which was later sold to Steel Dynamics.
Big River Steel released a statement saying, “Big River Steel will be one of many legacies John leaves with us all. John was a visionary, an innovator and a leader who dedicated his career to improving the steel industry and creating opportunities for those that worked within it.”
USW, ATI Digging in For Long Lockout
Picket lines staffed by locked out union workers appeared at several Allegheny Technologies, Inc. facilities this week. ATI has vowed to staff the plants with management and replacement workers and the United Steelworkers of America personnel locked out will be eligible for unemployment benefits during the lockout.
The two sides disagree about healthcare contributions for the union workers.
While US steel producers have reason to celebrate the signing of a trade package that includes Trade Promotion Authority (TPA) and Trade Adjustment Assistance (TAA), other manufacturing organizations will also benefit from the opening up of new markets. However, procurement professionals may perceive the legislation less favorably.
MetalMiner asked Jennifer Diggins, Director of Public Affairs at Nucor, to explain why these trade initiatives are so important for all manufacturers and specifically how the legislation will positively impact metal buyers.
MetalMiner:A lot of your customers purchase imports. How is this legislation helpful to them in any way?
Jennifer Diggins: The legislation is not targeting fairly traded imports. The American steel industry does not have a problem with imports; imports will always be part of our market. But we do have a problem with unfairly traded imports, where governments break trade rules they agreed to and provide illegal subsidies that allow foreign steel producers to sell products below costs.
If a company cheats on price, it raises serious questions about other ways they may be cutting corners to gain an advantage, which could ultimately come back to hurt their customers. We know China has tried to evade duties on some of their steel products by routing them through third-party countries to hide the point of origin and avoid the trade duty.
Steel producers in China have also added chemicals to products to avoid trade duties. Several years ago, China added boron to cut-to-length plate to avoid a duty. Nucor brought that case to the attention of the Department of Commerce who ruled that the boron added did not change the product and was subject to the trade duty.
Behavior like this should raise concerns for any customer. If China is willing to bend the rules like this, can you trust claims of product quality? Do you really know what you are buying? A free, transparent marketplace is best for both producers and consumers.
MM: Arguably the Chinese have done a lousy job curbing excess production and shutting down excess capacity. Do you think this legislation will provide the stimulus necessary for Beijing to finally shutter excess and obsolete production? Why/why not?
JD: The main goal of the legislation is to provide more effective tools to enforce our trade laws to ensure that countries sending products to our market are playing by the rules. The provisions in this legislation should create a disincentive to dump products in our market, but the legislation is not intended to address overcapacity issues in China.
The suit, which concerns corrosion-resistant steel used in automobile and construction industries, is the first salvo in the campaign this year by the beleaguered US steel industry to protect itself against a record flood of imports.
The steelmakers are U.S. Steel Corp. , Nucor Corp., Steel Dynamics Inc., ArcelorMittal USA, AK Steel Corp. and California Steel Industries. All are based in the US except multinational ArcelorMittal, the world’s biggest steelmaker, which is based in Luxembourg and London but owns big mills in Indiana and elsewhere in the country.
Prices have been sluggish—down about 25% since the start of the year—despite strong demand in the US. That has forced the companies, which make most of their steel near auto factories in the Midwest and South, to lay off thousands of workers and idle plants around the country.
They blame imports, particularly from China. The US International Trade Commission must decide within 45 days whether the business of US producers was sufficiently “injured” to merit duties. The Department of Commerce will issue a preliminary ruling by the end of 2015. Final rulings by both agencies are expected by mid-2016. The steel companies are expected to argue before the USITC that foreign companies benefit from subsidies from their governments and from currencies that have been intentionally depreciated relative to the dollar.
The US steel industry is suffering because a barrage of imports has reached a record 34% of market share, steel executives said today at the American Iron and Steel Institute‘s press briefing in Chicago.
From right: Roger Newport, AK Steel: Regulo Salinas, Ternium Mexico; Jim Baske, ArcelorMIttal NA Flat-rolled; John Ferriola, Nucor Corp.; Chuck Schmitt, SSAB Americas and Thomas J. Gibson, AISI. Photo: Jeff Yoders.
Nucor Corp. CEO John Ferriola said 4 million people whose livelihoods depend on the steel industry are at risk, but also that enforcing existing trade and anti-dumping laws consistently would make a wealth of difference for today’s producers.
“The first step is enforcing existing law as written,” he said. “Legally and consistently enforcing the laws on the books would help immensely… The American worker is still the most efficient worker in the world. We have relatively inexpensive energy, we have the raw material available, we have the best market in the world. When you look at those natural advantages, it makes no sense we should be operating at 60-70% capacity while the rest of the world is overproducing.”
The MetalMiner EAF in Review says the Jefferson County, Ala., Commission approved tax abatements on $277.5 million in capital investments on U.S. Steel’s investment of $230 million in an EAF for the existing steel mill just outside of Fairfield, Ala.
Image Courtesy of Grant Thomson, King of Random, via YouTube.
U.S. Steel is joining the EAF bandwagon that Nucor Corp.launched in the late ’60s, a ride that has made Nucor the largest, and most profitable, steel company in the US. An EAF is a furnace that melts scrap steel via an electrical breakdown of a gas. Lightning, for instance, is a natural electric arc. While U.S. Steel is smart to cut its production costs via an EAF — just look at how much cheaper the costs are vs. using raw materials! — the question remains: can you build your own?
MetalCrawler crawls the web for the latest metal news. Today in metals, Molycorp reports another loss, Detroit has gotten serious about stopping scrap metal theft and former Nucor CEO Dan DiMicco has a plan to get America working again.
Molycorp Reports Net Loss for Q4 2014
Molycorp reported net revenues for the last quarter of 2014 were $116.2 million, a 6% decrease from the third quarter. Full year 2014 net revenues were $475.6 million, a 14% decrease as compared to 2013. The California-based rare earths producer reported a net loss of $1.43 per share for the quarter and a net loss of $0.39 per share for the quarter on an adjusted, non-GAAP basis.
However, Molycorp did report higher production volumes in the fourth quarter at its Mountain Pass, Calif., rare earth facility, with 1,328 metric tons of rare earth oxide equivalent production. That compares to 1,034 mt in the fourth quarter of 2013 and 691 mt in the third quarter of 2014. Full year 2014 production at Mountain Pass totaled approximately 4,769 mt, compared to 3,473 mt in 2013.
Detroit Cracks Down on Scrappers
For generations, scavengers have prowled Detroit with impunity, pouncing on abandoned properties and light poles to pilfer steel, copper and other metals they could trade for cash at scrapyards. The practice left tens of thousands of buildings so damaged that they could not be restored, turning places like the North End into grim cityscapes straight out of a Tim Burton movie. In recent years, the city has become serious about fighting back. It razed dozens of rickety homes — lucrative scrapping targets — in that neighborhood alone in the past year. Residents have become increasingly vigilant about chasing scrappers away from their blocks, lawmakers have enacted rules making it more difficult to turn a quick profit from scrapping, and the police and private and public agencies have stepped up enforcement. The New York Times examines the effect on the city and the destitute scrappers, themselves.
Former Nucor CEO DiMicco Says US Must Become Competitive
Former Nucor Corp. CEO Dan DiMicco writes in his new book “American Made: Why Making Things Will Return Us to Greatness” that it’s high time to kick up the pace of US manufacturing. To do that, America must enforce its trade agreements to clamp down on cheating (particularly by China), invest trillions of dollars in US infrastructure and cut the corporate tax to bring corporate investment back to these shores. “American Made” was released March 3.
Morningstar Research Analyst Andrew Lane wrote that, relative to other industries in the basic materials space, the steel industry exhibits a very flat cost curve. For the production of hot-rolled coil, 85% of the industry cost curve operates within $100 per metric ton of the marginal producer and 46% operates within $50 per metric ton.1 This is a tight range relative to prevailing US hot-rolled coil prices of $705 per metric ton ($640 per short ton).
“Steel’s flat cost curve means moats are rare,” Lane wrote. Of the 9 steel companies highlighted in the report, only three have an economic moat: Nucor, Steel Dynamics, and CSN. Due to their low costs in procuring or refining ready-to-melt iron units, these 3 companies are the only firms within our steel coverage universe that we expect to generate economic profit in a mid-cycle environment.”
The top quartile of the iron ore cost curve is lower than levels implied by consensus, according to Morningstar. The analyst also believes China’s steel demand is likely to disappoint the market’s moderated expectations.
As seaborne prices remain depressed, the cost advantage associated with the operation of low-cost mining assets will become less distinct, Morningstar says. For vertically integrated companies that historically provided ready-to-melt iron units to their steelmaking furnaces at a cost well below seaborne unit costs, Morningstar expects profitability to partially erode relative to profitability levels enjoyed by the marginal producer of steel. This is because marginal producers will be able to acquire seaborne iron ore at falling prices. Favorable conversion costs in refining iron ore into ready-to-melt iron units will become the more important advantage.
Morningstar Steel and Steelmaking Raw Material Price Forecasts ($/mt)
Data sample applies an equally weighted index using results from Nucor, Steel Dynamics and, and US Steel. Source: Morningstar
Morningstar has more on “Strike While the Iron (ore) is Cold.”
Morningstar has published an in-depth research report, “Strike While the Iron is…Cold?” arguing that cheap iron ore will have profound implications for the steel industry. Iron ore’s new normal will mean lower steel prices and a flatter cost curve. At the company level, cheaper iron ore means different things for different players.
Low iron ore prices will redefine how steelmakers compete. Input costs will remain a key driver of competitiveness but will diminish in relative importance.
Conversion costs are increasingly critical. Firms with low conversion costs such as Nucor and Ternium are poised to benefit in the new competitive landscape.
Vertical integration loses its strategic appeal. Upstream exposure has always meant higher earnings volatility (fixed costs/variable prices), but the downside wasn’t apparent amid high iron ore prices.
Vertically integrated steelmakers will suffer margin contraction. Falling iron ore prices portend lower steel prices but provide no cost relief for vertically integrated players such as CSN and U.S. Steel. Over the long term, Morningstar analysts expect steel demand growth and better leverage over fixed costs to be the saving grace for these otherwise challenged companies.
Morningstar analysts believe that concerns about ArcelorMittal‘s upstream investments are overstated, allowing for a very attractive entry point on a promising turnaround story.
The research piece follows Morningstar’s expectations for a decline in iron ore prices to $70 per ton by 2017.