Stainless Steel

EU Upholds Stainless Steel Anti-Dumping Duties on China and Taiwan. More anti-dumping duties on Chinese and Taiwanese stainless steel have been upheld, this time in Europe. A major nickel producer is also slashing output.

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Second quarter results will be coming out later this month for North American producers of flat-rolled stainless steel. The burning question remains will US mills will file anti-dumping lawsuits about flat-rolled stainless steel?

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If anti-dumping lawsuits are filed, what will the impact be on manufacturers and buying organizations?

Why Are Imports Up?

Let’s remember the reason imports began increasing in mid-2014: domestic mills had four-month lead times. Service centers as well as large manufacturers had to source imported cold-rolled stainless to stay in business.

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A surplus of both domestic and imported cold-rolled stainless has led to low prices.

Manufacturers also relied on imports to make up for the loss of production at Outokumpu’s Calvert, Ala., plant caused by technical issues with its cold-rolling mills. In addition to long lead times, the strengthening US dollar kept imports flowing to the US.

Right now there is a glut of both domestic and imported cold-rolled stainless steel. Service centers still have higher than desirable inventories.

Base price or Nickel Surcharge?

Is it really the base price that is hurting the domestic stainless mills, or is it the nickel surcharge that has declined by nearly 25% since the beginning of the year devaluing inventories, domestic and import alike?

That question may be tough to answer, so, instead, we’ll look at the likely impact on buying organizations of anti-dumping suits:

  1. Bright Annealed Coil: Allegheny Ludlum is the only US producer of 48-inch-wide, bright annealed coil. AK Steel is the only producer of 36-inch wide. Outokumpu’s Mexinox facility produces 48-inch wide, but is in Mexico and could be subject to anti-dumping duties as it was in 1998. The bright-annealed demand in the US exceeds the domestic supply making imports a necessity. The bright annealed finish can vary greatly from producer to producer, so once reliable and consistent quality is established, buying organizations will want to stick with that source. Some of the best producers of bright annealed coil are in Taiwan, China and Japan as well as France and Germany.
  2. Light Gauge Coil (.030” and thinner): Once the mills get busy again, the light gauges are going to become constrained. The thinner the thickness, the longer it takes to roll on a cold-rolling mill. If anti-dumping lawsuits are filed, then light gauge from domestic mills could become more expensive, thus increasing the cost to the manufacturer.
  3. Proprietary Stainless Grades: Although the US stainless cold-rolled market is dominated by 304, 316L, 301, 201 and 430, there could be alloys strictly made on an import basis that would be part of anti-dumping cases.

The domestic mills need to look at their strengths and capitalize on them. Anti-dumping lawsuits are a crutch, not a cure for domestic producers. In the end, stainless coil anti-dumping suits hurt the manufacturer because it limits options and artificially increases prices to source stainless steel coil.

As seen in 2014, imports were a necessity for the US market and have always supplemented it. The domestic mills have already regained short lead times. They are back to delivering many products in under four weeks. The option to import cold-rolled stainless steel needs to be left open in the event that domestic mills cannot fulfill US demand.

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Nickel Drivers

July 2015 Monthly Metal Buying Outlook copy

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1. Dollar to Euro exchange rate

2. Stainless steel global production

3. Global capacity utilization

4. China coking coal prices (impacting Chinese nickel pig iron production)

5. China GDP & PMI data

Market Commentary

Nickel fundamentals do not tell a very good story if you are a stainless producer or service center. However, buying organizations likely feel differently about bearish metals. Nickel faces a number of headwinds that will continue to put pressure on prices.

Specifically, nickel suffers from weak global demand, excess service center inventory levels, an Indonesian export ban that failed to do what it intended to do (we’ll come to that in a moment) and increased stockpiles in China (although we do not accept the one-to-one correlation that higher inventory levels necessarily equate to lower prices and vice versa, lower inventory levels don’t necessarily equate to higher prices).

Service centers tell MetalMiner that inventory levels remain well above historical “healthy” MOH averages (about 2.4-2.6). Instead, inventory levels are up over 3.5 months, seasonally adjusted. This is a very bearish indicator. Demand has slowed for the typical summer slow-down. Service centers report transactional business is slow.

The Indonesian Export Ban

As many are aware the Indonesian government banned the export of unprocessed minerals back in January of 2014. Instead of having the desired effect of generating new investment for higher value added processing in country, exports have dried up and the government has begun tinkering with the ban to allow for some copper exports. The ban on nickel and aluminum exports remains intact but news reports suggest the ban for bauxite might be lifted which may be an indicator that the government could change its policy.

Regardless, this too is a bearish factor weighing on nickel.

The Outlook

Three-month nickel closed the month of June at $12,000/mt, sliding to a 6-year low. Nickel is in free-fall as shortage expectations faded. The long-term outlook remains bearish, especially while the rest of base metals keep falling. We expect to see high price volatility in the coming months.

So What Should My Industrial Buying Strategy Be?

This nickel price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the July 2015 report!

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I recently read in USA Today about a theft in Kentucky in which the most valuable piece of loot was a stainless steel barrel full of 17-year-old Eagle Rare bourbon, valued around $11,000.

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A humble stainless barrel containing $11,000 in aged bourbon was recently stolen. Photo: Gregory A. Hall, The (Louisville, Ky.) Courier-Journal)

In my time in the stainless industry I have heard of stainless steel being used in wine tanks and in the tequila-making process, but I was surprised to hear that stainless barrels are now being used in the making of bourbon.

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After all, it is the unused charred oak barrel that flavors bourbon as it ages.

Why Stainless?

During the traditional oak process, though, some liquid evaporates from the barrels—about 2% each year which, according to Whisky Magazine. The loss can be even greater in hotter climates such as Kentucky’s. The part lost is referred to as the “angel’s share” because it is the part of the bourbon the maker is supposedly sharing with the angels.

The theft of the stainless barrel of bourbon highlights one part of the process that many bourbon distillers would likely prefer the world not know about. The stainless barrel is used to store already aged bourbon until it needs to be bottled. Stainless steel doesn’t impact bourbon’s flavor, so the product can remain in the barrels for years until it’s ready to bottle. The longer some bourbons age, the more they can cost on the market. The use of stainless steel barrels in bourbon-making became more common in the 1990s.

The added benefit of storing bourbon in stainless rather than other oak barrels is that the distiller is not giving any more to the angels. Stainless steel barrels won’t allow our precious bourbon to evaporate. So, thank goodness for stainless steel barrels to ensure that the angels don’t overimbibe on America’s Native Spirit.

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Nickel hit a six-year low yesterday as Greece’s debt crisis obliterated confidence in global growth.

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The London Metal Exchange’s Index of six industrial metals is heading for a fourth-straight quarterly loss, the longest such streak since 2001. Greece’s standoff with its creditors is adding to economic concerns amid a slowdown in China.

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Nickel for three-month delivery retreated 4.9% to settle at $11,835 a metric ton at 5:51 p.m. on the LME, the biggest drop since Sept. 9. The price touched $11,730, the lowest since May 2009. The metal has lost 22% of its value this year.

Daily LME data showed nickel stocks rose 870 mt to 459,018 mt, halting a falling trend seen since the start of June and again sowing doubts that the market is poised to tighten significantly.

The Shanghai Futures Exchange (ShFE) approved three new nickel brands – including OAO Norilsk Nickel – today for delivery against its contracts as persistently high stockpiles and risk aversion over Greece weighed on the market.

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Architecture billings increased in May, while Morgan Stanley changed its forecast for nickel prices to a more bearish outlook.

ABI Back in Positive Territory

Led by growing demand for new schools, hospitals, cultural facilities and municipal buildings, the Architecture Billings Index (ABI) increased in May following its second monthly drop this year. As an economic indicator of construction activity, the ABI reflects an approximate nine to 12 month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the May ABI score was 51.9, up from a mark of 48.8 in April. This score reflects an increase in design services (any score above 50 indicates an increase in billings).

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“As has been the case for the past several years, while the design and construction industry has been in a recovery phase, we continue to receive mixed signals on business conditions in the marketplace,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Generally, the business climate is favorable, but there are still construction sectors and regions of the country that are struggling, producing the occasional backslide in the midst of what seems to be growing momentum for the entire industry.”

Morgan Stanley Bearish on Nickel

Morgan Stanley slashed its nickel price forecasts for the second half of the year Tuesday as demand from stainless steel producers continues to be undermined by a deteriorating outlook for global growth. The bank cut its third quarter 2015 nickel price forecast by 12% to $13,228 a metric ton; and its fourth quarter outlook by 10% to $13,448 a metric ton.

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Outokumpu has a competitive advantage that it hasn’t capitalized on and given the state of the stainless market we, quite frankly, can’t understand why.

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Outokumpu appears to be the only mill in North America that produces cold-rolled stainless steel 72 inches wide. But we’re not sure if anybody really knows that.

Coming from the mills, I believe each mill should focus on their competitive advantages, and Outokumpu is the only North American mill producing 72-inch-wide stainless. The US market for 72-inch-wide material has been historically served by imports from Outokumpu, Aperam and Tisco.

The Marketing Path is Well Paved

Outokumpu need not reinvent a marketing strategy to sell 72-inch-wide products. They only need to look at one of their direct competitors, North American Stainless.

In fact, Outokumpu ought to adopt the NAS strategy for 60-inch wide. Let’s flash back in time to about 25 years ago. Nobody used 60-inch-wide material. 60-inch wide was sold at a premium above 48-inch wide. It made sense for NAS to sell 60-inch wide at the same price, or even a cheaper price, as it optimized the full width of its rolling mills. Once the price difference went by the wayside, there were no penalties for buying wider material. Guess what? The market took off. Outokumpu should be deploying the same strategy.

It’s a Big, Wide Market

The market for 72-inch wide remains untapped. As I visited customers while working for a service center, I became interested in how many had wide lasers or other processing equipment. Other markets such as carbon steel and aluminum use wide material. Other markets such as carbon steel and aluminum use wide material. I saw that many customers had invested in new wider equipment. My hypothesis: I don’t think many buying organizations really know that 72-inch wide material is produced domestically.

That domestic capability ought to attract the attention of large cold-rolled stainless steel buying organizations.

Instead of stainless mills fighting for the same piece of pie, they need to focus on their respective competitive advantages. Outokumpu ought to be filling one of its three cold-rolling mills with 72-inch-wide orders. We just haven’t seen much promotion of this capability. The same holds true for Allegheny Technologies. Although Allegheny’s hot-rolling mill can go to 78.74-inch-wide, none of their cold-rolling processes are built around it. So, the best they can offer is to be an alternative for 60-inch wide, which in itself is not a bad thing. From a buyer’s perspective, competition is always good.

What This Means for Buyers

Wider is definitely better when it comes to welding. Wider widths help to reduce the number of welds needed. The last time we checked, welders were in short supply.

It’s pretty simple, Outokumpu: get rid of that premium and start making it attractive for people to buy your products. We’re pretty sure that will help fill that mill!

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Since we remain ever vigilant on DumpWatch here at the Metalminer week-in-review, we couldn’t help but be proud of India, US steelmakers and even the EU who grew a spine and said “no mas” to illegal dumping of steel from several nations, principally China. The petitioning nations’ steel industries deserve mad props for standing up for their markets.

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China, you see, threw down the gauntlet two weeks ago when Ministry of Commerce spokesman Shen Danyang said the rise in steel exports from his country was due to higher global demand and was a natural result of Chinese steel products having “strong export competitiveness.”

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“Export competitive” steel rod just looking for a new home somewhere other than China.

Ya Down With OPM (Other People’s Markets)?

Producing steel for overseas consumption to meet demand would be one thing but, as the American Iron & Steel Institute has long protested, China’s steel companies are subsidized at the state and national levels meaning they can often undercut prices in countries they export to by charging cost or even less than the cost of production thanks to the subsidies and what some say is a purposely devalued currency.

So, by calling Chinese steel “export competitive” Danyang was, essentially, saying “bring it” to all of the nations whose shores China exports its rebar, H-beams and coil products to. So, when six producers with major US operations —including Nucor Corp., ArcelorMittal USA, Steel Dynamics and U.S. Steel. — brought an anti-dumping action against China and four other nations this week over corrosion-resistant steel, they were saying, in international trade terms, “oh it’s already been brung, China!”

You Just Got Served

The US case, however, is the least of Chinese steel companies such as Baosteel‘s worries, as final rulings by the Commerce Department and US International Trade Commission aren’t expected until mid-2016. India has fast-tracked its beef with China’s dumpers and is already collecting duties. And they didn’t stop there. Malaysia and South Korea get their own duties when they try to bring that wack, cheap stainless steel into India.

Anti-dumping tariffs ranging between $180 and $316 per metric ton for industrial-grades of stainless steel have been imposed and are being collected at India’s borders as we speak. Not only are the duties already imposed, but N.C. Mathur, president of the Indian Stainless Steel Development Association (ISSDA) also said they were “long overdue.”

Oh, snap.

Right now, India is just collecting duties on hot-rolled coil products from the three countries but Mathur added that they might add cold-rolled tariffs, too, if the dumpers don’t step off. Okay, so he didn’t say “step off,” but the message was very clear as the tariffs were set for five years.

Keepin’ Electrical Steel Real

Prior to this week of anti-dumping actions, the European Union got in on the action by imposing duties of 28.7% from Chinese companies, including Baosteel and Wuhan Iron and Steel Corp over imports of grain-oriented electrical steel (GOES) and of 22.8% from South Korean producers such as POSCO. Even US producers such as AK Steel got hit with 22% tariffs. Once again proving that dumping steel in somebody else’s backyard ain’t nothin’ to mess around wit’.

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MM-IndX_TRENDS_Chart_June-2015_FNLRemember that bounce we saw in most of the metal prices we track last month? Annnnd it’s gone.

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The bearish environment our metals are up against resumed this month as the strong dollar erased nearly all of the gains from May. There were some positive outliers, though, with construction showing growth just as the summer building season begins in the US and the Global Precious Metals MMI was able to hold onto its May gains.

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India’s BJP-led government, more precisely its finance ministry, recently announced that it would impose, for a period of five years, anti-dumping duties ranging between $180 and $316 per metric ton for some industrial-grades of stainless steel imported from China, Malaysia and South Korea. The idea, obviously, is to stop the tide of surging steel imports.

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Subsidized imports, or “dumping,” of steel into a country by producers from other nations can be a vexing issue. Steelmakers from the US, India and Europe have been facing mounting pressure from cheap imports.

US Anti-Dumping Accusations

Earlier this month, for example, MetalMiner reported that six steelmakers with major US operations had filed a trade complaint seeking punitive tariffs for alleged unfair pricing of imported steel from China, India, Italy, South Korea and Taiwan.

The move by the Indian government came after persistent efforts by steel producers to place tariffs on the foreign products for nearly two years. The cheap imports, claimed the Indian steel industry, were damaging its business prospects.

India consumes about one million mt of industrial steel stainless steel, of which, around 40% is imported, largely from China.

Indian Tariffs

The anti-dumping tax obviously was welcomed by domestic steelmakers. N.C. Mathur, president of the Indian Stainless Steel Development Association (ISSDA) was quoted in a news report as saying the move was long overdue. According to Mathur, the duty has been imposed on hot-rolled flat products stainless steel with all its variants originating from China at $309 per mt, $316 per mt from Malaysia and from Korea at $180 per mt. He added the move would give a respite to the domestic industry.

The ISSDA also complained to the government about of abuse of the India–Malaysia comprehensive economic cooperation agreement (CECA). Stainless cold-rolled flat products from Malaysia are being imported to India through a preferential tariff benefit, the association had claimed in its statement. ISSDA demanded that the Ministry of International Trade and Industry, Malaysia, investigate the cold-rolled imports.

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The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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