Steel

We have often noted the funny ways metals are marketed in the overall media here at MetalMiner. Whether it’s steel being touted for its strength, while alloyed with titanium, or zinc being used to galvanize rods in environments where galvanizing won’t help, the the images of strength, resiliency and luxury certain metals hold benefit the sector as a whole.

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One may think that China’s steel industry could hardly be in a worse place.

Half the industry is losing money in spite of falling iron ore and coking coal costs and a reduction in domestic power costs all aiding steel producers on the supply side. Even among those that did not lose money in the first half, margins are said to be razor thin and banks are reported to be cutting credit lines and presenting difficulties in rolling over loans according to China Iron and Steel Association (CISA) comments posted by Reuters.

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Concern in China is rising that June’s 3.4% fall in auto sales, compared to the year before, could be the start of a trend. After two years of consistent growth and high capacity utilization the world’s largest car market is showing signs of fragility.

Data from the China Association of Automobile Manufacturers quoted in the FT suggests China’s automotive market may be maturing after years of breakneck growth.

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Normally, when a project of this size is called off, it sends ripples throughout the entire steel sector, and even negatively affects the stock market.

Free Download: July Metal Price Forecast

Yet, when a few days ago, South Korean steelmaker POSCO let it be known that it had decided to put its much-vexed $12 billion project to build a steel plant in India’s iron ore-rich state Odisha on hold, the reaction in India as well as globally was muted. Almost as if it was anticipated.

Regulatory and Approval Delays

The subdued response can best be attributed to the extraordinary delay – a decade – in trying to get the project off the ground. Holdups in receiving permissions for land use and environmental clearances from the local and Indian governments, long legal battles, protests against the project by residents, red tapism, even the kidnapping of company executives in 2007 for a day by protesting activists, all ensured that the project remained a paper tiger all this while. It’s been a veritable ten years of legal and public relations battles for the former Pohang Iron and Steel Company.

For much of this period, we at MetalMiner, faithfully reported and analyzed the developments on the “POSCO India story,” from the sidelines.

It’s not clear yet, though, whether the Korean giant has finally thrown in the towel in sheer disgust at the inordinate delay, or whether it’s really a strategic decision that was part of the company’s overall cut in overseas business. Given the fact that steel industry across the globe is hemorrhaging cash, it could very well be the latter.

Blame the Steel Market

Officially, unnamed POSCO officials were quoted in the Indian media saying – it’s all part of the restructuring. The exercise is expected to reduce by about a third, POSCO’s overseas businesses. The company has been struggling with sagging profits for some time now, and cutting costs seems like the best way out for now. No doubt, if the Odisha project had gotten off the ground, it would have had provided some financial succor for POSCO in today’s troubled times.

However, a Press Trust of India report quoted by website FirstPost said POSCO put the project on hold due to the aforementioned delays in regulatory approvals.

As far back as early 2014, we predicted that the POSCO India project was on its deathbed, and that no amount of posturing by either the new Indian government sworn in last year or even by POSCO could save it.

A Reuters report said the South Korean steelmaker scrapped its plans after a new law made it costlier to source iron ore for the plant. This was the entire attraction of Odisha in the first place, access to cheap and readily available iron ore.

POSCO Swears The Project’s Not Dead… Yet

The steel major, however, would like everyone to believe that the epitaph of this “Indian steel tragedy” has yet to be written. Steel analysts here feel that POSCO, the world’s sixth-largest steelmaker by revenue, was likely to continue in India even if it ultimately decided to scrap the Odisha project altogether. That’s because the company had no choice but to be in a country where steel consumption was growing at a steady pace, a global rarity.

There are also conflicting reports that POSCO was thinking of taking the steel project somewhere else in India – perhaps to the western state of Maharashtra where it already has a downstream steel project. But this was all officially denied by POSCO.

The company has, so far, acquired only around 600 acres out of more than 4,000 acres needed for the 12-million-metric-tons-per-annum steel plant.

And what would have been an otherwise humorous episode in the rather serious steel business was the fact that barely a couple of days after POSCO’s announcement that it would abandon the project, local tribal residents were reported to have forcibly reoccupied the land they had given up for the project. Almost 500 of the 600 acres of land have been taken over as of this writing. That, more than anything else, was the real pointer to this project’s final status – “a lost cause.”

Free Download: Latest Metal Price Trends in the July MMI Report

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

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This is part two of an analysis of how China’s recent stock market crash affects neighboring India.

The Indian arm of global credit rating agency Fitch said with soft demand in China, base metal prices had gone down in the range of 2-21% in the first six months of 2015.

Free Download: Latest Metal Price Trends in the July MMI Report

On a year-to-date basis, Chinese domestic hot-rolled coil steel prices declined by 21%. London Metal Exchange nickel prices are down by about 12%, LME copper prices by 9% and China alumina prices by about 10%. In the last one month, iron ore prices dropped by 20%, Shanghai steel prices by 16.4%, and zinc prices by 7%.

What’s This Mean for Steel?

In reference to India’s steel sector, rating agency Ind-Ra pointed out that Indian manufacturers were already struggling with low capacity utilization, and lukewarm domestic demand was unlikely to benefit the margins of manufacturing units in the short term.

So was there any silver lining at all for India where the Chinese downturn is concerned? Depends who you listen to or talk to. Here’s what a report in the Business Standard claimed — the economic downturn would be good for smart cities. The rationale — copper is trading at a 6-year-low and China is the world’s top copper consumer, accounting for 40% of global consumption.

How About Aluminum?

Similarly, aluminum is trading at new lows and was already trading at prices below cost of production of many Chinese companies. For India, as a consumer, this is good news as the cost of constructing new infrastructure, especially smart cities, would reduce.

And that extends to a lower price for a technology innovation dear to almost everyone in the world, according to the report. Mobile phones will be cheaper, it predicted. If the Chinese really devalued their currency, world markets will be flooded with Chinese goods at low prices affecting exports of other countries, including India.

As for the rest, such as automobile manufacturers, it could possibly get only worse in the coming days.

Free Download: July Metal Price Forecast

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

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Old Chinese proverb: when a giant in a race with another falters, the other, without a doubt, wins.

Free Download: July Metal Price Forecast

Actually, I made that up. Ignore it. Still, when China’s economy started showing signs of a meltdown, some in India “predicted,” in a knee jerk reaction, that it was a “welcome development” for neighbor India.

No need to reiterate here how the two nations, with the largest populations and the largest economic growth rates, were in competition with each other in almost every sector.

A few days later, after the fog cleared, warning bells were rung by analysts and ratings agencies that if China was to lose the race, it would be tough for India, too. Even a tiny spill, such as the one China’s stock market felt last week, was bad enough. There would really be no winners in the race.

China’s economic troubles could have a significant impact on India, particularly in sectors like IT and steel, according to India’s trade and industry body, The Associated Chambers of Commerce and Industry of India (Assocham).

The adverse economic developments may have a directionally negative impact on the Indian metals industry as well as on sectors with an export focus, claimed another agency, India Ratings and Research (Ind-Ra) in a statement.

News reports, quoting metal analysts, claimed that while it was true that a drop in commodity prices linked to China’s slow demand was a positive for India, it was not really “good news” for a host of metal and iron ore producers such as Steel Authority of India, Tata Steel, and upstream oil producers.

The fall in ore, steel and copper prices hit Indian manufacturers as hard as any other company in the world, so what’s there to cheer about?

A paper prepared by Assocham said that in today’s global economy, where India’s economy — like any other — is plugged into the rest of the world’s, the China downturn was bound to impact India. China, incidentally, was the number one merchandise trader in the world with over $4.16 trillion worth of trade, followed by the US with $3.9 trillion, as claimed by Assocham.

But the more pertinent point made by Assocham was that the kind of cost competitiveness which the Chinese companies provided to manufacturing semi-process industries — such as electronics, electrical and telecom equipment — would disappear from the global supply chain. This is without even mentioning the inability of India to fill any of those spaces vacated by the Chinese companies.

Another news report quoted Hitesh M. Avachat, Deputy Manager at CARE Ratings, as saying that China accounted for more than 30% of the overall consumption of metals globally. For Indian metal producers, the price collapse meant their landed price in India would go down further, thereby pressuring companies to reduce prices. Because of the likely Chinese dump of its surplus goods, India’s export demand may also fall, he added.

Jayant Acharya, Director, Commercial and Marketing, JSW Steel Ltd., quoted in the same report, said if prices kept falling, margins would get impacted.

The Indian arm of global credit rating agency Fitch said with soft demand in China, base metals prices had gone down in the range of 2-21% in the first six months of 2015. On a year-to-date basis, Chinese domestic hot-rolled coiled steel prices had declined by 21%, London Metal Exchange nickel prices by about 12%, LME copper metal prices by 9% and China alumina prices by about 10%. In the last month, alone, iron ore prices dropped by 20%, Shanghai steel prices by 16.4%, and zinc prices by 7%.

Free Download: Latest Metal Price Trends in the July MMI Report

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

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Gold hit a fresh five-year low today and China’s top steel-producing city is getting serious about enforcing pollution standards.

Gold Keeps Falling

Gold stretched its losing skid to six sessions and made a fresh five-year low in early trading Monday. At its low point Monday, an ounce of gold dipped below $1,100 to $1,080 — its lowest level since February 2010 — and was down 4.6% before recouping some of its steep losses.

Free Download: July Metal Price Forecast

About 8:30 a.m. ET, an ounce of gold was down $18.80, or 1.7%, to $1113.10. Last week, gold tumbled more than 2%.

Our Lead Forecasting Analyst, Raul De Frutos predicted the yellow metal had further to fall last week.

Tangshen to Crack Down on Pollution

China’s top steel producing city of Tangshan will punish steel companies if they fail to meet tough new pollution standards over the next three months, according to new industry guidelines. This could force closures and help ease a severe capacity glut. China is using tougher environmental rules to help tackle a severe glut of steel capacity that has depressed prices.

Free Download: Latest Metal Price Trends in the July MMI Report

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This week saw the bears continue to run roughshod over our monthly MetalMiner Indx as the July MMI was almost universally down.

bearwave

“Hey guys, remember me? I’ll just be over here in your metals markets.”

How bearish was it? I saw Yogi and Boo-Boo stealing picnic baskets from our raw steels index, that’s how bearish!

Free Download: July Metal Price Forecast

Yet, even as steel, nickel and copper hit multi-year lows, we did see some proof that at least some of our metals may have hit rock bottom this week.

Banks Buying Aluminum Again

In the wacky world of aluminum warehousing, Japanese stocks of the light metal finally started falling again in June. That’s the first time in a year. The cause is big banks in the stock and finance trade purchasing and warehousing the metal as it’s now inexpensive enough for bankers to bet on it as an investment again.

No one in that business invests in aluminum without expecting the price to go up and prices are low enough, now, to make it worth the banks’ while. Umm, yay?

Pile of aluminium bricks waiting for transport to the factory

“See ya later, Japan!”

Chinese Steel in the Crosshairs

A week after the US steel industry won unprecedented protections from foreign, particularly Chinese, steel, things got worse for the Chinese steel industry.

Free Download: Latest Metal Price Trends in the July MMI Report

The sell-off in the Chinese stock market is hurting base prices and demand in the world’s largest construction market is not recovering. Exports seem to be the only place Chinese overproduction can go.

Can prices go lower? Always, but these are certainly good signs for the battered aluminum and steel markets.

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Price volatility hit metals markets hard last week and now some are calling for new rules to regulate the London Metal Exchange. In India, South Korean steelmaker POSCO may pull out of a planned plant because of a new law that would increase the price of its raw material, iron ore.

New LME Rules?

The LME may have to introduce new rules to rein in extreme price volatility to conform with other exchanges and regulatory regimes, industry sources told Reuters.

Free Download: July Metal Price Forecast

Prices of industrial metals have fallen fast in recent months on worries about demand growth in top consumer China, with concerns reinforced last week as China’s stock market plunge pulled copper down to a six-year low of $5,240 a metric ton.

POSCO May Scrap India Steel Project

South Korean steelmaker POSCO might scrap plans for a $12 billion project it agreed to set up in India a decade ago, after a new law made it costlier to source iron ore for the plant, a company spokesman told Reuters. The US-listed shares of POSCO fell as much as 3.3% to their lowest in more than six and a half years after the report.

Free Download: Latest Metal Price Trends in the July MMI Report

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MM-IndX_TRENDS_Chart_July-2015_FNL

There’s no reprieve from the bearish metals environment in this month’s MMI Report.

More Analysis: The July Metal Price Forecast

With the exception of the very specialized grain-oriented electrical steel (GOES) market and the Renewables MMI®, all of our indexes lost ground in June and could not gain traction amid falling commodity prices and a strong US dollar.

The one index that was steady from last month, which tracks raw material inputs of the renewable energy sector, has been stagnant for two years and, until trends show otherwise, its steadiness is more a measure of a lack of market activity than anything close to a turnaround or a new trend toward increasing prices.

The Stainless MMI is flirting with two-year lows and our Raw Steels index is up against lows not seen in years as well. Weakness in the Chinese stock market has put additional pressure on metals that were already reeling from the effect of the strong dollar. This is bad news for steelmakers, miners, refiners and smelters by itself, but coupled with increased supply in most of the metals we track, it’s become a real deterrent to profitability.

Moreover, both Europe and the US have higher-than-normal inventories of semi-finished products at service centers. Mill lead times remain short suggesting weak demand. Weak demand will continue to place downward pressure on prices.















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