steel price

Two years ago, India overtook the U.S. to become the third-largest steel producer in the world, but now finds itself a net importer of steel in 2015-16.

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To address this and other steel issues, the Indian government has drafted and recently released a “National Steel Policy” for 2017. The policy aims for production target of 300 million metric tons per year by 2030-31, up from the current 122 mtpy, a reduction in imports and also a hike in the current production of a crucial raw material, coking coal.

India’s steel ministry says the policy is an effort in steel circles in India to steer the industry to achieve its potential and a strategy to overcome various hurdle such as high input costs, lack of availability of raw materials, and to try to achieve the 300 mtpy target in an environmentally friendly manner so that the country can reach its correspoding global efficiency benchmarks.

A major disadvantage that the Indian steel sector faces is the limited availability of essential raw materials like coking coal, both in quantity and quality. Most steel producers have to depend on imports to overcome this impediment, mostly from neighboring China.

The National Steel Policy aims at achieving increased domestic availability of washed coking coal so as to reduce import dependence on coking coal by 50% by 2030-31. Under the plan, India is aiming for per capita steel consumption of 160 kilograms per person from the present 61 kg.

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India’s crude steel production in 2015-16 was 89.77 million metric tons. The country’s steel sector, the only silver lining in an otherwise bleak global steel economy last year, faced challenges. Heightened steel demand domestically in India could see it get there. In 2015, for example, India was the only large economy in the world where steel demand continued to grow positively at 5.3%, against negative growth in China at -5.4%.

The Steel Ministry is seeking comments on the policy draft from stakeholders and public.

The International Energy Agency recently upgraded its estimate for rising U.S. shale production this year, projecting output will increase by 500,000 barrels per day by the end of 2017, which will translate to an increase of 170,000 bpd averaged over the year.

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Benchmark crude prices subsequently fell in London. In the first week of January, U.S. crude production rose to 8.95 million bpd, the highest level since April. Oil-rig use expanded to 529 in the prior week, a 67% increase from the 2016 low of 316.

Japanese Steel Officially Worried About Trump

Japan’s steel industry is concerned over the risks of a U.S. exit from the Trans-Pacific Partnership deal and reform of the North American Free Trade Agreement by the incoming Trump administration, a Japanese industry official said on Friday.

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“We are worried about the risks of the Trump administration taking protectionism actions or policies,” Kosei Shindo, chairman of the Japan Iron and Steel Federation, told a news conference.

Our January MMI report saw almost universal price pull backs in December, but that’s to be expected in a bull market with active investors.

The monthly MetalMiner IndX showed only moderate (less than 4%) price falls, even though they were visible across almost all the sub-indexes.

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The price prospects for most of the metals we track remain strong and we have already seen some renewed price increases since we initially published our sub-index reports starting on the first of the year.

The Chinese economy and the strong dollar continue to power the metals bull market… at least for now. Happy new metals year!

The price you pay for your steel pretty much depends on two things:

  1. Prices in China, since they set the floor for international steel prices.
  2. How much of a premium U.S. mills are able to justify over that price.

 

Graphic: Raul de Frutos/MetalMiner.

Prices in China are moved by supply and demand dynamics. We’ve explained in previous posts that overall, things are setting up for Chinese prices to continue to trend higher. While demand has been better than expected, China met its 2016 capacity cuts goal and further cuts are expected to take place this year as the country tackles its pollution issues.

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However, in this post we’ll focus on the premium that U.S. customers pay. This price spread between U.S. and international prices is also very important and could make your purchases more expensive in the coming months.

Spread between HRC US and HRC China. Source: MetalMiner IndX.

Spreads have fallen sharply over the past few months. The spread between U.S. and Chinese hot-rolled coil (HRC) prices is now $97/ton. To put this in context, consider that this spread was $276/ton just seven months ago. Read more

As the new year dawns, we turn our eyes toward the metal markets of 2017. Will the bull run of 2016 continue? What will be the standout performer of the metals we track? Will New Coke finally make a comeback as Even Newer Coke? Only to re-reintroduce Coke Classic in all its aluminum-encased glory? We have predictions. Lots of them.

Steel on Wheels

That’s right, the North American steel market is picking up steam and chugging toward expanded production and renewed profitability for many of the companies we track. Contributor James May said this week that flat products will enjoy higher demand while hot-rolled coil capacity will expand thanks to a combination of new capacity going online (Big River Steel‘s plant is set to open) and the trade policies of the incoming Trump Administration.

Iron Ore Overseas

China consumes over 70% of the world’s seaborne iron ore and a strong year for the Chinese economy bolstered the steelmaking raw material from from $40 per metric ton to $70/mt in global markets last year, an increase that helped re-energize the bottom lines of mining majors Rio Tinto Group, Vale SA, BHP Billiton and Fortescue Metals Group.

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This week, Sohrab Darabshaw pointed out that that was cold comfort to smaller miners in India who are still hamstrung by high export taxes and can’t get their ore into China or other lucrative world markets. That could change soon, but MetalMiner Co-Founder Stuart Burns was even more cautious, reminding us that physical iron ore prices were influenced by a rampant futures market last year.

Source: Adobe Stock/Geargodz

“The interplay of the futures market, physical demand from steel mills, and seaborne iron ore supply has too many variables to predict 2017 and ’18 with any certainty,” he said.

Trumping Trade

While some of the markets are still murky, one thing we all agreed on this week was, once Donald Trump is installed as President of the United States, 2017 certainly won’t be boring when it comes to international trade. Read more

After more than four years of languishing, some hope’s been rekindled in India’s iron ore mining sector.

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Ore production jumped 22% between April and October, according to figures released by the government. Iron ore production stood at 100 million metric tons during the resurgence, against 81 mmt during the same April to October period a year ago. What’s brought even more cheer is the news that exports, too, jumped 9 times their previous level, to 9 mmt from last April to September, as compared to 1 mmt, the same period last year.

Export Taxes

With a steep price hike in global markets aided by protectionist measures for the domestic steel industry, will India see a resurgence in iron ore exports? Not so fast.

India has plentiful iron ore stockpiled but taxes are holding up exports. Source: Adobe Stock/nikitos77.

The protectionist measures imposed by India’s government previously included an export duty tax of 30% on high-grade iron ore. Many within the mining sector are of the opinion that the export tax must go, or at the very least be reduced, to boost exports. Read more

Average grain-oriented electrical steel surcharges fell for the third year in a row. 2016 average surcharges took the biggest hit because Allegheny Technologies stopped production of GOES. AK Steel did not implement a surcharge until July 2016.

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Our own GOES M3 MMI showed only small price movements from month to month. The index hit a low of 181 back in July and today shows a modest recovery to 192, a 5% gain.

GOES follows its own fundamentals (e.g. supply and demand) and does not always follow the price arc of other more common forms of steel such as cold-rolled coil or hot-rolled coil. In fact, some of the wider trade dynamics for those forms of steel had little to no impact on GOES.

Which brings us to a larger issue. Will President-elect Trump, who is arguably pro-steel and who has gone on record against China’s trade practices, implement any policies that will likely impact GOES markets?

To begin, the nature of trade between the two countries, the U.S. and China, appears more complicated than what can be seen by the naked eye. Raw material/commodity-like supply chains lack the complexities of supply chains found in industries such as electronics. Blanket tariffs are easy to issue and calculate for commodities that move from point A to point B. But electronics industry supply chains involve components, parts, sub-assemblies, final assembly, etc. across multiple countries and locations. A blanket tariff on electronics will harm China much more than other countries as the tariff would apply to the “final point of assembly.” This could create all sorts of electronics shortages and problems here in the U.S.

Why Are We Discussing Electronics Supply Chains?

Because it would be easier to get tougher on China for commodities such as steel. And though China has curbed excess capacity in recent years, we could see a scenario in which tough trade policies such as a tariffs could significantly limit Chinese imports, which currently make up about 10% of domestic steel demand according to a recent analysis by Stratfor.

China will retaliate but a scenario exists that China could account for far less steel imports into the U.S. than it currently does (China has cut excess capacity already). In terms of grain oriented electrical steel, however, China does not represent the bulk of GOES imports into the U.S., in fact, Japan, Russia and the U.K. are far bigger GOES exporters to the U.S.

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Therefore, any President Trump trade policy that goes into effect (no pun intended) will likely have a bigger impact on the broader steel markets and a far less significant impact on the U.S. GOES market.

Next month, we will examine the potential impact of NAFTA changes on GOES markets.

Grain-Oriented Electrical Steel M3 retook last month’s loss rising by more than 3%.

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What will 2017 bring for the steel industry?

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

At the beginning of the year, it’s always fun to look forward and pick out some of the themes for the year. 2016 was certainly volatile as hot-rolled coil pricing went from $360 a ton to $600/ton, then back to the low $400s/ton before recovering to $600/ton. Phew! Read more

Rising raw material surcharges are driving up U.S. steel prices, particularly stainless surcharges. The Allegheny Ludlum304 and 316 stainless surcharges rose 34% and 25%, respectively, on the MetalMiner IndX from December to January.

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The chrome portion of our prices jumped month on month and Platts reported that the same thing happened to its stainless benchmarks.

Turner Construction Index Posts Strong 4Q

Turner Construction Company reported recently that its Fourth Quarter 2016 Turner Building Cost Index — which measures costs in the nonresidential building construction market in the U.S. — has increased to a value of 1006. This represents a 1.11% quarterly increase from the Third Quarter 2016 and a 4.90% yearly increase from the Fourth Quarter 2015.

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The U.S. construction market continues to experience broad growth, with the West and Southeast regions seeing more significant gains, and the Northeast and Central regions seeing more moderate gains. While raw material prices have remained flat, they have experienced an overall gain this year and fabricated material prices have seen a continuous growth this quarter.

Our Raw Steels MMI fell by two points, dragged down by a sharp drop in coking coal prices. Chinese coking coal prices have been quite volatile over the past few months. But despite the recent decline, prices are still well above last year’s levels.

On the bullish side, we saw a big increase in steel flat product prices, both domestically and internationally.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Hot-rolled coil and cold-rolled coil prices in the U.S. have risen 13% and 17% respectively since they hit bottom in mid-November.

Additionally, steel prices in China continued to climb in December. We already noted, that one of the reasons to expect higher steel prices in the U.S. was rising Chinese prices. Prices in China set the floor for international prices and the spread between U.S. and international steel prices has narrowed so much in some steel product categories, like HRC, that there isn’t much incentive for domestic steel buyers to look for import offers.

While prices in China have risen, Chinese steel exports have fallen, suggesting that the country is absorbing more steel. In November, Chinese steel exports fell 16% compared to last year. For the first eleven months, exports are down 1% compared to the corresponding period in 2015.

The real estate sector is among the world’s largest steel consumers. Total investment in real estate in China during the first eleven months of 2016 rose 6.5% compared to the same period of last year. China’s passenger car sales rose 17.2% compared to the same month last year and it’s the seventh consecutive month were car sales rise in the double digits.

China’s Steel Supply to Fall In 2017

While China’s better-than-expected demand was a key driver to higher steel prices in 2016, we believe that China’s supply might be the key to higher steel prices in 2017.

For years, Chinese cities have been choking on the smog spewing from China’s industrial production sector, but things have gotten much worse lately. In December, authorities asked 23 cities in northern China to issue red alerts as inspection teams scoured the country. The scale of the red alert measures shows that the Chinese government is taking air pollution seriously this time.

China’s energy consumption is mostly driven by its industry sector, the majority of which comes from coal consumption. Coal burning is the biggest contributor to air pollution in China. One of the principal users of coal, and therefore most polluting, is its steel industry.

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China has previously applied stricter anti-pollution rules and supply-side reforms designed to cut capacity in the coal and steel sectors, which helped push prices up. Now that the situation is getting unbearable for citizens, China has no choice but to get tough in its self-declared “war on pollution.” The result is that we could see significant supply disruptions in China’s metal production sector, particularly in steel.

What This Means For Metal Buyers

The expected boost in infrastructure spending in US will help support steel prices. However, the main driver to steel prices continues to be China. In 2017, steels buyers need to monitor if China is able to spur demand growth rates and whether its steel supply falls amid pollution issues.

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