steel price

Shares of U.S. steelmakers made an spectacular run this year, making the steel industry one of the hottest investing opportunities. Stock investors poured money into steel stocks as domestic prices rose.

US Steel (in Blue) and AK Steel (in red) stock prices. Source: MetalMiner analysis of stockcharts.com data

U.S. Steel (in Blue) and AK Steel (in red) stock prices. Source: MetalMiner analysis of stockcharts.com data.

However, since August, we’ve seen some downward pressure on flat-rolled steel prices with hot-rolled-coil falling near $70 ton from it’s peak in June.

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That caused shares of companies like U.S. Steel and AK Steel to fall more than 40% in just a matter of weeks. Notice how the price trends of shares of both companies are almost identical.

HRC prices correcting since August. Source: MetalMiner analysis of stockcharts.com

HRC prices correcting since August. Source: MetalMiner analysis of stockcharts.com data.

While steel prices continue to weaken, so will the stock prices of U.S. steelmakers. Investors looking to buy shares of steel companies might want to wait until steel prices make a comeback, if they do, that is.

China’s steel industry will see demand drop even further in 2017 and the Federal Reserve left rates unchanged yesterday.

CISA: Chinese Steel Demand Will Fall More

China’s steel demand is likely to drop for a third year in a row, an industry official said on Thursday, as mills in the world’s top producer focus on reducing capacity.

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China’s crude steel consumption slipped 1.9% from January to July and there may be a slight drop for the year, said Wang Liqun, vice chairman of the China Iron and Steel Association (CISA).

Fed Leaves Rates Unchanged Again

U.S. stocks marched higher on Thursday, with the Nasdaq hitting a record intraday high, as investors cheered the Federal Reserve‘s decision to not raise interest rates yesterday.

While the Fed said the risks to economic outlook were roughly “balanced”, it left rates unchanged for want of “further evidence of continued progress”. Inflation remains below the central bank’s target of 2 percent and members saw room for improvement in the labor market.

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Even if the Fed raises rates at its last meeting of the year in December, many are worried that Central Banks toolkit for hitting inflation targets is ineffective.

Metal prices bottomed out earlier this year and ever since we are seeing rising prices. However, was that the ultimate bottom after a five years of a bear market? Are metal prices set to continue running higher in 2017?

Industrial metals ETF flattens in Q3

The industrial metals ETF flattens in Q3. An end to rising prices? Source: MetalMiner analysis of @StockCharts.com data.

These are questions we can’t answer, but they will be answered moving forward. Although industrial metals entered a bull market this year, we have yet to see how long this rising market will last. In Q3 we already witnessed some weaknesses with many base metals struggling to build on this year’s gains.

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We see three critical factors to watch as we move in 2017. These factors will determine the sustainability of this year’s bull market:

Supply Cuts

Some production capacity was closed this year to fight low prices and the market now seems more balanced than last year. These supply cuts helped push metal prices higher, but the problem is producers might now have enough incentives to restart production. A good example is the zinc market. Zinc prices rose sharply this year thanks to supply cuts, but now markets wonder if Glencore and China’s zinc miners will start upping their production to reap the rewards of higher prices. Read more

The industrial metals complex saw prices slip nearly across the board in August as volatility
returned to stock markets and investors lost confidence in central banks’ ability to increase
growth.

MM-IndX_TRENDS_Chart_September2016_FNL-TOPVALUE100

Even the vaunted Global Precious MMI, which has enjoyed large gains this year due to safe
haven status, dropped this month. It experienced a 4.5% loss. Our Construction MMI and the Grain-Oriented Electrical Steel MMI indexes saw increases this month, but every other sub-index either saw a 2-5% loss or held flat.

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This was somewhat expected as metals such as steel and aluminum remain in a global oversupply situation and metal prices don’t move in a straight line. They zig-zag. Our metal price benchmarking service has thousands of transaction prices to reference as evidence of that.This could be merely a one-month correction or it might signal that the weakness in metals markets is finally denting the bull run of strong price performers such as gold and platinum. Stay tuned next month for more.

There appears to be an almost universal expectation that iron ore prices will start to retreat soon, after surging some 62% through April. They have since eased back but are still up 28% on the year.

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Without doubt, much of iron ore’s gains in 2016 have been driven by strong demand from China, with imports up 9.3% to 669.65 million metric tons in the first eight months of the year from a year ago. But prices in Qingdao lost 5.8% in the seven sessions through Wednesday. That was the longest run of daily declines since March and while steel output remains robust, questions are again being asked how much longer prices can remain north of $55 per mt as yet more supply comes on stream. According to the MetalMiner index, finished steel prices have eased this month.

Iron Ore Output

You would expect the miners to refute this and, sure enough, in a Bloomberg report, Vale SA and Cliffs Natural Resources Inc. said that the impact of the new output won’t be as severe as expected and will see the $50 per mt level holding, but banking analysts are not so sure with Westpac saying last month rising supply will drive prices below last year’s lowest point of $38.30, while Citigroup expects an average of $45/mt next year. Read more

Many grain-oriented electrical steel market participants know that macroeconomic drivers and general steel price trends often diverge from GOES trends.

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Comments from the most recent Steel Market Update summit at the end of August suggest it may be hard to “buck the trend.”

Macro Trends

What are these macro trends?

  • Steel demand looks weak overall and overcapacity will continue unabated. According to Tony Taccone, Partner at First River Consulting, “global steel demand has stalled and there will be no growth going forward.” In addition, Taccone indicated the world has 700 million metric tons of overcapacity and the problem is set to become worse.
  • Trade cases will put the kabash on Chinese export growth. China has produced too much steel at unsustainable prices and has exported materials at the marginal cost of production, according to Taccone.
  • Automotive demand may have peaked and aluminum demand may weaken steel demand.

Despite weak demand in some sectors, others paint a more positive picture. According to Alan Beaulieu, Principal of the Institute for Trends Research, many factors look more positive for demand including light vehicle production, U.S. industrial machinery production (recently turned positive), a booming office building construction market, a stabilized oil and gas extraction market and healthy global demand for crude oil.

GOES_Chart_September_2016_FNL

In addition, Beaulieu pointed to rising mining, electricity generation and manufacturing sectors, that certainly bodes well for power equipment production and demand.

Micro Trends

With the loss of Allegheny Technologies, Inc. capacity for GOES, the uptick in electricity generation and construction, and the more bullish outlook for other commodities and non-ferrous metals, we might expect GOES prices to creep up accordingly.

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Though the macro trends paint a slightly more negative picture for steel prices in general (negative for producers, positive for buying organizations) for the near term, GOES markets don’t cleanly align with steel markets. September marks the second month of a rising price trend.

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Earlier this year, China promised it would cut steel capacity. However, despite friction with several trading partners, Chinese exports continued to look strong in the first half.

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

Exports Fall in August

Chinese exports decline in August. Source: Customs Dept PRC

Chinese exports decline in August. Source: Customs Dept. People’s Republic of China.

Following those comments, exports started to taper down. In August, China exported 9.01 million metric tons of steel, a year-over-year decline of 7.4%. Other than capacity cuts, the anti-dumping duties that many countries have slapped on Chinese steel products are contributing to this decline. Read more

Will Europe’s more collaborative approach to stemming China’s steel exports to the region have more success than the U.S.’s downright combative use of anti-dumping legislation?

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Both Europe and China are trying to portray this summer’s moves — to form a joint team to monitor bilateral steel trade data and to supervise China’s moves to address overcapacity — positively as the European Union engages China in a constructive dialogue rather than publicly berate the People’s Republic.

Steel mills creating Chinese steel overcapacity

No matter where China closes mills, there will be pain for those displaced as overcapacity is finally dealt with. But is any pace, at this point, fast enough? Or are import barriers the only remedy? Source: Adobe Stock/zjk.

Behind the scenes, the E.U. is every bit as desperate — arguably more desperate — than the U.S. to stem the flow of cheap steel imports. European steel producers are constantly berating their own governments — and particularly the E.U. — for not doing more to reduce the threat. At the recent G20 Summit, European Commission president Jean-Claude Juncker pressured China to address its steel overcapacity saying at a press conference in Hangzhou last week that the summit “must urgently find a solution to the problems facing the steel industry,”  according to the South China Morning Post.

G20 Frustration Over Steel Overcapacity

Juncker wasn’t finished. He went on to say China’s steel exports to the E.U. increased 28% in the first quarter while prices fell 31% in the same period. He said steel overcapacity in China was twice the output in the E.U. and this was “a serious problem” adding the European steel sector had lost 10,000 jobs in recent years. Read more

It was on one of those weeks when a non-metal commodity dominated metals coverage. We mean the one that factors into just about every metal price through either production or transportation costs. The black gold that sluices across prairie and canyon in tanker cars, pipelines and trucks. The input whose value and production fluctuates at the whim of both Sheikh and wildcatter.

So, honey, then, right?

Saudi Arabia and Russia promised to work together on a “task force” to try to right-size the oil overproduction we’ve become accustomed to over the past two years. MetalMiner Co-Founder Stuart Burns warns that the days of $100 per barrel are, indeed, long gone but something could still come of this latest effort to rein in production. Naturally, the markets ebbed and flowed on speculation of what, exactly, that might be like a small ocean of the stuff filling to the brim a tanker bound for China.

Negative on that Manufacturing Growth

The Institute of Supply Management‘s manufacturing index turned negative in July for the first time since February. And the services gauge fell last month to the lowest level since early 2010. Perhaps the economy’s not doing as great as we thought it was?

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The manufacturing index dropped to 49.4% from 52.6% in August and the ISM services gauge retreated to 51.4% from 55.5%. The combined reading of two indexes was also the weakest in six years.

Transshipment Trouble

Last week, we wrote about China Zhongwang and its billionaire owner, Chinese Communist Party member Liu Zhongtian, buying U.S-based extruder Aleris. Well, more trouble this week for Zhongwang as the Commerce Department launched a new investigation into transshipments related to nearly 1 million metric tons of aluminum stored in rural Mexico.

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Zhongtian says he and his company have nothing to do with it. The Wall Street Journal? Well, it says shipping documents and sales receipts related to the massive stockpile all lead back to Zhongwang.

Less Titanium Production in Utah

Instead of forming titanium sponge by passing titanium tetrachloride in a gaseous phase over molten magnesium or sodium at its Rowley, Utah, facility, Allegheny Technologies, Inc., is cutting out the middle man. The specialty metals producer will now buy its titanium sponge on the open market. By idling the Rowley titanium facility indefinitely, ATI is also cutting 140 jobs. Read more

The Federal Reserve released its last assessment of the economy before its next meeting and steel imports into the U.S. were down in July.

Fed Upbeat About the Economy Ahead of Meeting

The Federal Reserve‘s Beige Book assessment of the economy is generally positive, noting a tight labor market in some areas but little evidence of wage inflation.

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It’s the latest data point for policymakers before they meet this month and decide whether to raise interest rates amid mixed signals and scant progress toward a 2% inflation target.

Steel Imports Into the US Down in July

Based on the Commerce Department’s most recent Steel Import Monitoring and Analysis (SIMA) data, the American Iron and Steel Institute (AISI) reported recently that steel import permit applications for the month of August totaled 3,028,000 net tons. This was an 8% decrease from the 3,294,000 permit tons recorded in July and a 7% decrease from the July final imports total of 3,266,000 nt.

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Import permit tonnage for finished steel in August was 2,282,000 nt, down 8% from the final imports total of 2,471,000 nt in July. For the first eight months of 2016 (including August SIMA permits and July final data), total and finished steel imports were 22,001,000 nt and 17,576,000 nt, down 22% and 23%, respectively, from the same period in 2015. The estimated finished steel import market share in August was 25% and is 25% year-to-date.