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.
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
Our Raw Steels MMI rose 14% in November amid rising Chinese and raw material prices and a rebound in domestic prices.
Prices of flat steel products in the U.S. corrected since July but they finally showed some upside momentum in November. As we pointed out last month, there are reasons to believe domestic steel prices have found a floor and are set to rise as we move into 2017.
International Price Arbitrage Narrows: Imports Fall
Chinese demand from infrastructure and construction has been robust this year. So has its auto sector, a key industry for steel demand. Domestic prices fell over the past few months, but prices in China rose, trading now at their highest levels in two years. As a result, the international price arbitrage has come down to normal levels.
In some steel product categories,m like hot-rolled coil, this price arbitrage has narrowed enough that there isn’t much incentive for U.S. steel buyers to look for import offers. In October, The U.S. imported 2.4 million metric tons of steel, down 11% from the same period last year. Steel imports fell on a monthly basis for three consecutive months after they hit a one-year high in July. Fewer imports provide more pricing power to domestic steel producers in an otherwise well-supplied industry. While international steel prices continue to rise, domestic mills won’t find it difficult to find arguments for a price hike.
Industry Hopes After Trump’s Victory
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. Stocks of American steel companies were the best performers in the stock market since the election as investors are optimistic 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.
Higher input costs help to keep supply in check as mills’ margins get squeezed. Thermal coal prices in China have more than doubled this year. Iron ore prices reached a two-year high in November, with prices trading near $80 a metric ton. This rising trend in input costs will help support the recent rally in steel prices.
Industrial Metals Boom
Finally, another reason to expect a rebound in steel prices is the ongoing price strength across the metal complex. We are witnessing powerful moves across the board. Even copper, a metal whose fundamentals didn’t look appealing, rose over 25% in a matter of days. The bullish sentiment across base metals is another reason to expect a continuation of this recent rebound in steel prices.
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The Census Bureau reported late last week that U.S. construction spending was up during October by 0.5% compared with the September total. Year-over-year, construction spending in October was up by 3.45. During the first 10 months of the year, construction spending amounted to $972.2 billion, 4.5% above the same period in 2015.
Our Construction MMI was up 8.7% as domestic demand for construction metals shot up just as prices increased nearly across the board for the entire industrial metals complex.
Construction demand in the world’s largest metals consumer, China, continues to grow even as the central government there tries to restrict home buying, the engine for that demand.
“It’s likely that the government will expand infrastructure investment to make up for the gap left by property-related investment falling,” Julia Wang, China economist at HSBC told the Financial Times.
What is buoying construction the most is an investor class now excited about all industrial and construction metals. The election of President-elect Donald Trump promises $1 trillion in U.S. infrastructure investment and stronger protections against dumping of foreign imports.
Trump’s policies, while still in their formative stages, are seen as bullish for public construction, particularly infrastructure such as roads, bridges and airports. Stocks of construction companies and materials providers also jumped after Trump’s election.
Public construction spending actually accounted for most of the increase in U.S. construction spending in October — unusually, since that sector has been contracting in recent years — gaining 2.8% compared to September. Spending on educational facilities was especially brisk, up 4.1% for the month, while highway construction gained 1.9%. Compared with last year, however, public construction spending as a whole was off 0.6%.
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.
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.
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.
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.
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.
One 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.
“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:
Dutch 3D printing technology firm MX3D is close to beginning construction on its stainless steel, 3D-printed pedestrian bridge in Amsterdam.
We wrote about the bridge and its design in 2015. MX3D Co-Founder and CMO Gijs van der Velden recently explained to me at the Autodesk University trade show in Las Vegas where the project is at and why they expect construction (via giant welder robots who will weld individual parts “printed” in mX3D’s facility together) to start in early 2017.
“We’re at the point where we’ve printed every critical part of the bridge and all we need is approval from the engineers,” van der Velden said. “Our design is quite elaborate and all the diameters change everywhere and we use 3D printed parts. We’re getting pretty close and once they approve we have agreed with the City government that once we do a full load-bearing test it will be acceptable. It’s not the normal procedure but the city was very helpful in accommodating us.”
The bridge, which will be made of stainless steel 316 alloy, will be installed in a public park in Amsterdam and cross one of the city’s famous canals.
One of the stainless steel supports of MX3D’s 3D-printed pedestrian bridge that will soon be assembled and welded together in Amsterdam. Source: Jeff Yoders.
“(We chose 316 stainless) because it’s highest grade standard and not too expensive,” van der Velden said. “We want to make this technique available for other professions — other than aerospace (where it’s already being used) — so, we want to work in steel, stainless steel, bronze, aluminum.”
Driven by the same dynamics pushing steel prices higher in North America, the Asian market has seen price announcements this week suggesting that the trend will remain upward for the rest of this year.
Tokyo Steel Manufacturing Company limited announced this week it would raise the prices of all its products by $45.12 per metric ton (¥5,000 per mt) for December delivery. According to Reuters, the flat increase means product prices of Japan’s top electric arc furnace steelmaker will rise by about 7 to 11% in December, depending on the product. Read more
The Organization of the Petroleum Exporting Countrieswas trying this morning to rescue a deal to limit oil output as tensions grew among the producer group and non-OPEC member Russia, with top exporter Saudi Arabia saying markets would rebalance even without an agreement.
OPEC experts started a meeting in Vienna at 0900 GMT and were due to make recommendations to their ministers on how exactly the organization and its member-states should reduce production when it meets on Nov. 30.
Meanwhile, the Algerian and Venezuelan oil ministers were to travel to Moscow on Monday and Tuesday in a final attempt to persuade Russia to take part in cuts instead of merely freezing output, which has reached new highs in the past year.
Steel Futures Surge on Upbeat Chinese Demand
Chinese steel futures jumped over 6% to the highest in 31 months on Monday, as investors raised bets that strong property and infrastructure investment will sustain demand in the world’s top consumer, spurring a similar rally in iron ore and zinc.