steel price

We wrote recently about the probable impact of President-elect Trump’s forthcoming economic policy, particularly his focus on infrastructure spending, Global trade and putting U.S. manufacturing, particularly steel, at the heart of his economic policy.

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His promises have been generally well-received yet they raise an awkward question: Creating demand and limiting supply — first by rolling out steel-consuming infrastructure projects and second by taking more aggressive action against steel imports — will inevitably raise domestic steel prices.

This would be good for domestic U.S. steel producers, in as much as construction companies could pass along the costs infrastructure projects, it would incur only marginally higher input costs as a result paid the taxpayer. But it would inevitably also have a wider impact on the steel market, rising prices for steel consumers and higher prices, in turn, for the wider population buying automobiles, refrigerators and other products manufactured with any significant steel content.

How We Got Here

The U.S. steel industry has suffered grievously at the hands of cheap imports. Steel dumped by producing countries with a massive overhang of spare capacity and hidden subsidies such as China have depressed prices and pushed many major producers such as U.S. Steel into loss-making positions that resulted in downsizing and the loss of jobs. Read more

Renewed economic confidence followed the election of republican nominee Donald Trump and Americans snapped up new vehicles at a rapid pace in November, giving the U.S. auto industry a chance of breaking its all-time record for full-year sales.

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The Automotive MMI was up, too, jumping 8%.

In November, U.S. auto sales rose 3.7% compared with a year ago, according to Autodata Corp. On an annualized basis, that equaled a rate of 17.87 million units. November sales growth projections had ranged from 2.7% at Edmunds.com to 4.2% at Kelley Blue Book. Total sales for November were 1.38 million, that shattered a record for the month that was set in November 2001.

Automotive_Chart_December-2016_FNL

The month’s annual sales rate, adjusted for two extra selling days this November, was 17.9 million vehicles, more than the 17.7 million average estimate.

A contributing factor to the solid month was the Thanksgiving weekend and Black Friday sales, which are having an increasing effect on the month’s output. With one month to go, the auto industry has a decent chance to match or exceed its 2015 full-year record of 17.47 million vehicles sold.

Automotive sales and metals prices are both benefiting from bullish sentiment among buyers and investors. Steel companies stock prices have increased after Trump’s election just as aluminum and copper prices in the bullish metals markets.

Another factor in new car sales is the enduring low prices for both oil and gasoline, which might change soon now that the Organization of Petroleum Exporting Countries and other producers such as Russia have finally agreed to a production freeze.

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Rising oil prices, however, might not be the detriment to auto sales that they have in the past. Hybrid vehicles and simply more efficient fuel consumption have blunted the impact of gasoline prices on new car sales. One of the reasons that the gas tax has become such a poor funding mechanism for the federal Highway Trust Fund is that motorists simply have to buy less gas for today’s efficient, newer vehicles.

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In much the same way as President-elect Donald Trump conducted his election campaign, he has kept himself very much in the headlines in the interim period until he takes charge as president in January.

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Trump won by promising infrastructure investment and that he’d protect American manufacturing jobs. What’s that mean for American steel? The two were seen by many as mutually supportive. Read more

The Department of Commerce, late yesterday, placed import duties on carbon and alloy steel cut-to-length plate from Brazil, South Africa, and Turkey.

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For the purpose of anti-dumping investigations, dumping occurs when a foreign company sells a product in the U.S. at less than its fair value.

In the Brazil investigation. Commerce found dumping has occurred by Companhia Siderurgica Nacional and Usinas Siderurgicas de Minas Gerais SA, at a final dumping margin of 74.52%. The dumping margin for the mandatory respondents was based on adverse facts available (AFA) they did not cooperate in the investigation. Commerce established a final dumping margin of 74.52% for all other producers/exporters in Brazil.

In the South Africa investigation, commerce found dumping occurred by Evraz Highveld Steel and Vanadium Corp., at a final margin of 94.14%. They also did not cooperate in the investigation. Commerce calculated a dumping margin of 87.72% for all other producers/exporters in South Africa.

In the Turkey investigation, Commerce found dumping occurred by Ereğli Demir ve Çelik Fabrikalari T.A.Ş., at a dumping margin of 50%. It, too, did not cooperate in the investigation. Commerce calculated a final dumping margin of 42.02% for all other producers/exporters in Turkey.

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As a result of the final affirmative determinations, Commerce will instruct U.S. Customs and Border Protection (CBP) to collect cash deposits equal to the applicable weighted-average dumping margins.

Liquid Molten Steel IndustryOne Australian miner is requesting Chinese steel mills pay a premium for its highest grade iron ore, a move that experts say will revive the once dormant pricing war.

According to a report from Reuters, Rio Tinto is the world’s No. 2 iron ore miner and demand from Chinese steel producers was at a six-year high when the annual pricing system collapsed. Iron ore supply issues are expected to reignite tensions between miners and mills over pricing.

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“The steel market is so hot this year and they think it’s something that buyers can accept,” an anonymous source told Reuters. “If Rio gets it, other miners may follow.”

It is reported that Rio is looking for up to $1 per ton more than the index price for its Pilbara iron ore product on long-term contracts from Chinese mills for the year ahead. Rio was previously selling iron ore at a premium exclusively to traders.

Steel Prices on the Rise in Asia

Our own Stuart Burns recently wrote that the Asian market has seen steel prices rise due to much of the same dynamic that has pushed steel prices higher domestically. These movements suggest the trend will remain up for the remainder of the year.

How will steel and base metals fare for the remainder of 2016 and into 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

 

In a series of articles, we will be looking at globalization and the growing reaction against many of the consequences that free trade has brought, epitomized most recently by the election of Donald Trump as U.S. president on an anti-globalization ticket.

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One of several admittedly poorly detailed pledges Trump made was to save the U.S. steel industry by raising barriers against Chinese competition, perceived as unfair, state-supported dumping of excess production in the U.S. market.

Popular as Trump’s message was with many voters, his sentiments are not singular to the U.S. In Europe, steelmakers face sluggish growth and have struggled with overcapacity for years creating an environment in which even the most efficient have struggled to make money.

Hampered or supported by a political social contract to protect workers rights and employment — depending on whether you are a producer or a worker — every job loss has been resisted and delays in restructuring have dragged out the pain for everyone. In such an environment, even the usually patient Europeans have finally snapped and, spurred by popular opposition to free trade, have started to ramp up action against imports seen as unfairly priced or which are believed to circumvent World Trade Organization rules.

Europe Circles in on Vietnam

A recent Reuters report covers the European Union’s anti-fraud office (OLAF) investigations into whether Chinese companies shipped steel through other countries, known as transshipment to avoid anti-dumping duties.

Apparently, OLAF is looking into several cases where Chinese steel firms shipped the metal to another country, disguised its origin, and then shipped it on to Europe to avoid duties or quota limits from the original producing country. As with the recent China Zhongwang case in the U.S., the transshipment country is again Vietnam. OLAF is investigating 190 shipments of Chinese coated steel coils that arrived in Portugal, Spain and Poland from Vietnam in 2013-2014, the news wire says.

OLAF estimates the shipments via Vietnam were worth about $19 million and that the steel was given Vietnamese certificates of origin, the Vietnamese trade ministry said on its website, and it should be said Vietnamese authorities are cooperating with the E.U. in investigating these allegations.

If confirmed, OLAF would apply retroactive duties of 58% on the shipments and the Vietnamese fear it could impact bona fide shipments from the country, if not with automatic duties then with greater scrutiny and control.

Normal Enforcement?

Action taken against countries that break WTO or trade rules is a long way from anti-globalization. The most free-market orientated countries would be foolish to not ensure their trade partners adhere to the rules.

Steel is the second-largest industry in the world after oil and gas, with an estimated global turnover of $900 billion. As Reuters points out, steelmakers face sluggish demand growth, chronic overcapacity and poor profitability, problems that a flood of Chinese steel allegedly sold at a loss has made far worse than it should be.

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Yet, in spite of repeated claims the country intends to close capacity — even though it has closed 150 million tons this year — China’s steel output rose for a seventh straight month in September and its exports are on track to beat last year’s record of 112 million metric tons.

The country has not, until now, seen its exports as a problem, but as it gradually gets shut out of overseas markets it may finally dawn on China that they cannot allow their steelmakers to simply export their excess capacity, whether it is being done profitably or dumped at below cost, their trade partners are rapidly losing patience.

Since their peak in the summer, domestic prices of flat steel products have fallen in the range of 20-30%. However, we have some reasons to believe U.S. steel prices are set to rebound:

Trump Wins: Investors Bet On Steel Companies

What changes in the steel industry Donald Trump will make are still unknown. What’s clear is that the new president-elect made trade, manufacturing and the steel industry a cornerstone of his agenda.

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Stocks of American steel companies soared last week as investors hope that a Trump-led government will boost domestic infrastructure, which could be a boom for steel demand. In addition he has stated he would institute more measures to protect domestic steel producers.

Dow Jones US Steel Index hits a 2-year high. Source:MetalMiner analysis of stockcharts.com data

Dow Jones U.S. Steel Index hits a two-year high. Source:MetalMiner analysis of @stockcharts.com data.

A good benchmark for steel prices is the Dow Jones US Steel Index, which tracks major steel producers around the globe. Following the election, the index rose sharply to the highest levels in two years. The stocks of US steel companies are linked to domestic steel prices. This powerful price increase hints to a rebound in steel prices. Read more

China has come in ahead of schedule on its target of cutting 45 million metric tons of steel capacity in 2016, reaching the goal before the end of October, the country’s state economic planner said on Friday.

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China also hoped to achieve its 2016 goal of cutting 250 mmt of coal capacity before the year-end, Li Pumin, general secretary of the National Development and Reform Commission (NDRC), told a news briefing.

Oil Surplus Poised to Continue in 2017

The oil market surplus may run into a third year in 2017 without an output cut from the Organization of Oil Exporting Countries, while escalating production from exporters around the globe could lead to relentless supply growth, the International Energy Agency said on Thursday.

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In its monthly oil market report, the group said global supply rose by 800,000 barrels per day in October to 97.8 million bpd, led by record OPEC output and rising production from non-OPEC members such as Russia, Brazil, Canada and Kazakhstan.

The Department of Commerce placed preliminary anti-dumping duties on imports of carbon and alloy steel cut-to-length plate (CTL plate) from nine countries. Some of the tariffs were as high as 130.63%.

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Anti-dumping laws provides U.S. businesses and workers with a transparent, quasi-judicial, and internationally accepted mechanism to seek relief from the market-distorting effects caused by injurious dumping of imports.

Austria

In the Austria investigation, Commerce preliminarily found that dumping has occurred by the sole mandatory respondent Bohler Edelstahl GmbH & Co KG, Bohler Bleche GmbH & Co KG, Bohler International GmbH, Voestalpine Grobblech GmbH, and Voestalpine Steel Service Center GmbH (collectively, Voestalpine) at a preliminary dumping margin of 41.97%. Read more

Our Raw Steels MMI rose 4% in October, meanwhile flat-rolled products in the U.S. continued to fall sharply.

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This is a strange divergence in prices and something to take into account. Indeed, the fact that international prices are rising while they fall domestically suggests that prices in the U.S. are close to finding a floor.

Raw-Steels_Chart_November-2016_FNL

This summer, the price arbitrage between U.S. and international steel prices was huge. Well above historical levels. Two months ago we predicted that this unprecedented price arbitrage wouldn’t last, since enough holes existed in the anti-dumping duties to allow material to reach U.S. shores. But now, domestic prices have declined enough that this arbitrage is falling back to normal levels.

HRC Spread

Take, for example, hot-rolled coil. The price spread between Chinese and U.S. HRC is now below $150 per ton from $280/st just two months ago. At these levels, U.S. prices should start following Chinese prices, as we are used to, and given that prices in China are hitting new highs, it’s normal to expect U.S. prices to stabilize toward the end of the year.

Cold-rolled coil prices in the U.S. are still expensive compared to China but not nearly as much as they were during summer. The spread between U.S. and Chinese CRC has halved in just a few weeks. The spread has fallen from its peak at $420/st to stand now at $195/st. Still elevated but not much above of what we are used to.

Chinese Demand Still Looks Strong

Chinese demand from infrastructure and construction has been robust this year. So has its auto sector, a key industry for steel demand.

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In September, Chinese automobile sales rose 27% from the same period last year. This is the seventh consecutive month in which auto sales have risen and the third consecutive month where growth is above 20%. The growth rate this year is substantially higher than last year. Steel prices in China have held well thanks to strong domestic demand. This could continue to support prices in China and in the U.S., too, now that the price arbitrage between China and the U.S. has come down to normal levels.

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