Steel

The Environmental Protection Agency‘s Clean Power Plan took another hit this week and ArcelorMittal, the world’s largest steel company, beat expectations with its Q2 filing.

Fifth Circuit Blocks Clean Power Plan ‘Haze Rule’

The Fifth U.S. Circuit Court of Appeals’ recent block of the Environmental Protection Agency‘s regional haze plan for Texas and Oklahoma supports arguments that the agency overstepped its legal authority in crafting the overall Clean Power Plan, states challenging the rule told the D.C. Circuit on Wednesday.

We have extensively covered the clean power plan and its implications for U.S. manufacturers.

ArcelorMittal Beats Q2 Forecasts

ArcelorMittal, the world’s largest producer of steel, on Friday reported a better-than-expected core profit for the second quarter but kept its outlook for the full year unchanged. Core profit almost doubled in the second quarter compared to the same period last year to $1.77 billion, well above the $1.574 billion expected in Reuters poll of eight analysts.

There’s a quiet battle being fought outside the limelight between India and other steel producing nations over the world’s largest democracy’s protectionist measure, the Minimum Import Price (MIP), introduced in February.

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The MIP, essentially a tariff on imports targeted mainly at neighboring China, is set to expire August 5. While large steelmakers in India are pushing for the continuation of MIP by the government, some member-nations of the World Trade Organization have started to apply pressure to remove the MIP. The MIP on 173 steel items for six months was introduced as a way to curb cheap imports and firm up steel prices in the home market. The MIP ranged from $341 a metric ton to $752/mt depending on which product.

Other Nations Protest the MIP

In a recent meeting of the goods council at the WTO, nine members, including the U.S., the European Union and China, asked India to justify its continued restrictions on imported steel.

There are some who say that if India continues with the MIP after the deadline it could be dragged into dispute proceedings at the WTO by any of the complaining members, although India has consistently maintained it’s done no wrong and the MIP is a general agreement on tariffs and trade-compliant instrument to regulate imports. Almost all steel producing major countries have imposed one form or the other of tariffs or other protectionist measures to curb steel imports. There are also reports here that India could prune the list of 173 steel products and still keep the MIP in effect for most products.

MIP Effect: Imports Fall

In the first quarter of FY17 (India’s fiscal year begins in on April 1) total steel production in India grew by 3.8% year-on-year, while overall steel consumption grew by only 0.3%. In the same period, imports fell by 30.7% year-on-year, according to a new report by rating agency India Rating and Research (Ind-Ra).

According to the agency, the increase in Indian steel production was supported by the MIP policy but was unlikely to continue beyond August after it expires. Since the imposition of the MIP, domestic producers benefited by way of import substitution. Ind-Ra felt the continuation of the industry protection measure beyond August is required to “safeguard the interest of the domestic steel industry, which has shown signs of a recovery in the current fiscal on the back of MIP.”

Free Download: The July 2016 MMI Report

Ind-Ra opined that profitability for most steel producers is likely to remain under pressure due to the newly added capacity. The interest cost and depreciation from these new capacities has now started to impact the income statements and increased both operations and financial leverage for India’s steel industry. For India’s steel companies to see healthy profit generation, capacity utilization levels need to increase significantly.

A recent report by five U.S.-based steel trade associations analyzed 25 of the largest steel companies in China detailed the amount and type of government subsidies each company received in recent years.

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The analysis found that these subsidies and policies have led to tremendous overcapacity and created a fragmented domestic steel sector in China made up, primarily, of inefficient, heavily polluting companies, all of which require government subsidies at several levels to stay open. Read more

A new report attempts to quantify government subsidization of Chinese steel and the Fed has left interest rates alone again.

Steel Associations Release Chinese Subsidy Report

Five of the leading American steel trade associations today released a report documenting that the steel industry in China is heavily subsidized by its government, and the rapid growth in the industry there has been fueled by government subsidies and other market-distorting policies.

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The report was released by the American Iron and Steel Institute, the Steel Manufacturers Association, the Committee on Pipe and Tube Imports, the Specialty Steel Industry of North America and the American Institute of Steel Construction.

The report analyzed each of the 25 largest steel companies in China and detailed the amount and types of government subsidies each company received in recent years. The analysis also found that these subsidies and policies have led to tremendous overcapacity and created a highly fragmented domestic steel sector in China made up of many inefficient, and heavily polluting, companies.

The full report is available from AISI.

Fed Holds Rates Steady Again

The Federal Open Market Committee of the Federal Reserve decided to maintain the target range for the its benchmark interest rate, the federal funds rate, at 1/4 to 1/2 of 1%.

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The Fed, in a statement after a two-day meeting of its policy-making committee, said that the economy had overcome wobbles this year and that job creation had increased with moderate economic growth. The central bank added that it saw fewer clouds on the horizon as the U.S. entered the eighth year of an economic expansion.

The United Steelworkers and the petitioning domestic steelmakers praised new anti-dumping tariffs against cold-rolled flat steel products, while also saying that the damage from cheap imports has already hurt their operations.

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“Today’s final duty orders by the Obama Administration expands fairer pricing conditions on cold-rolled steel products from five countries, combined with duties placed earlier this summer on the same steel import products from China and Japan,” United Steelworkers President Leo Gerard said. “We have nearly 19,000 steelworkers and iron ore miners still on extended layoff status since last year as the remaining steel trade case investigations continue to reduce huge inventories of unfairly dumped and subsidized finished steel imports that have been stockpiled before the case was initiated.”

Non-coil stainless is included in a new anti-dumping petition. Source Adobe Stock/Jovanning.

Cold-rolled steel flat products from five countries received new tariffs. Source Adobe Stock/Jovanning.

 

The cold-rolled case hit producers in Brazil and the Republic of Korea hardest — South Korea’s POSCO was hit with 64.62% combined anti-dumping and countervailing duties due to a failure to confirm key elements of its response to investigators — but tariffs have already had an effect on steel imports into the U.S. Most of them were already being collected as preliminary duties that became final last week. The initial case was filed last year.

Injury Before Remedy

“The year-long investigation and duty orders show our trade laws need a rewrite in today’s world of steel overcapacity that’s putting American manufacturing workers and miners on layoff in their our own market, while foreign producers keep shipping illegally-subsidized and dumped products,” USW International Vice President Tom Conway told the Times of Northwest Indiana. Read more

Total crude steel output in the first five months of 2016 fell by 2% from the same period last year. Total crude steel production stood at 659.9 million metric tons in the first months of 2016, a slight decline from the 673.2 mmt in 2015, according to latest data from the World Steel Association.

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China also missed its goal to reduce steel production in the first half, achieving only a third of what it promised.

Baosteel and Wuhan’s Troubled Merger

Listed units of Baosteel Group, the second-largest Chinese steelmaker, and Wuhan Iron and Steel Group, the sixth-largest, said in separate stock exchange announcements on June 26 that they are planning on restructuring together.

While the two state-owned enterprises didn’t provide any details on what that entailed, industry experts say one possibility is that Baosteel may have been ordered by Beijing to take over all or a majority of Wuhan Steel amid a broader push to reduce the number of state-owned enterprises.

Free Download: The July 2016 MMI Report

The way in which the restructuring is done will be a major indication of how the government plans to transform other smoke-stack sectors of the economy where SOEs dominate. Investors will, in particular, be watching whether Baosteel is allowed to shutter much of the high-cost production at Wuhan Steel or whether profits have to be sacrificed to jobs retention as the government seeks to avoid any threat to social stability.

The Department of Commerce issued final anti-dumping and subsidy orders on Thursday, affirming and adding on to initial tariffs on cold-rolled steel flat products from Brazil, India, Korea, Russia, and the U.K. The duties are already in effect and will remain so for five years to counteract dumping and government subsidization.

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Commerce determined that imports of cold-rolled steel from Brazil, India, Korea, Russia, and the U.K. have been sold in the U.S. at dumping margins of 14.43% to 35.43%, 7.60%, 6.32% to 34.33%, 1.04% to 13.36%, and 5.40% to 25.56%, respectively. Commerce also determined that imports of cold-rolled steel from Brazil, India, Korea, and Russia have received countervailable subsidies of 11.09% to 11.31%, 10%, 3.91% to 58.36%, and 0.62% to 6.95%, respectively.

Some producers in Brazil were hit with 46.5% total duties while some producers in the U.K. will only receive 6.02% tariffs, which will continue to be collected by Customs and Border Protection upon import into the U.S. One producer in the Republic of Korea was hit with 64.62% total duties on cold-rolled imports.

Brazil Investigation

Brazil’s Usiminas Siderurgicas de Minas Gerais did not respond to all of Commerce’s requests for information and, therefore, Commerce calculated a final dumping margin based on adverse facts available of 35.43% and levied 11.09% countervailing duties on the company for a total penalty of 46.52% tariffs.

Korea Investigation

In the Korea anti-dumping investigation, Commerce found that dumping had occurred by mandatory respondents POSCO/Daewoo International Corporation and Hyundai Steel Corporation at dumping margins of 6.32% and 34.33%, respectively. Commerce calculated a final dumping margin of 20.33% for all other producers/exporters in Korea.

What’s interesting about this investigation is that while Commerce calculated a final subsidy rate of 3.91% for Hyundai Steel, the second mandatory respondent, POSCO, was unable to confirm certain key elements of its response when the Commerce team conducted verification at its headquarters in Korea. Therefore, Commerce calculated a subsidy rate based on adverse facts available of a whopping 58.3% meaning that POSCO gets a total anti-dumping/countervailing duties tariff of 64.62%. Commerce calculated a final subsidy rate of 3.91% for all other producers/exporters in Korea.

Free Download: The July 2016 MMI Report

The successful petitioners for these investigations were AK Steel Corporation, ArcelorMittal USA, Nucor Corporation, Steel Dynamics, Inc., and United States Steel Corporation.

The London Metal Exchange is seeing volumes fall while Japan and China spar over anti-dumping duties the latter slapped on the former for electrical steel imports.

LME Capacity, Official Storage Both Fall

The number of London Metal Exchange physical storage units continues to decline in tandem with falling registered stocks. As of July 8 there were 608 registered warehouses for the storage of base metals, down from 621 a year ago and from almost 700 in 2012 and 2013. Reuters’ Andy Home has more.

Free Download: The July 2016 MMI Report

Total exchange-registered stocks have fallen to 3.6 million metric tons from over 7.5 million over the same time frame, largely due to the LME’s forced attrition of load-out queues at locations such as Detroit and the Dutch port of Vlissingen.

Japan Condemns Chinese Electrical Steel Tariffs

China’s decision to levy anti-dumping duties on electrical steel products from Japan was unjust and regrettable, the chairman of the Japan Iron and Steel Federation said on Monday.

China’s decision to levy anti-dumping duties on electric steel products from Japan was unjust and regrettable, the chairman of the Japan Iron and Steel Federation said on Monday. “Japan has been explaining that exports of the electric steel products from Japan had caused no injury to local industry, but China has rejected our claims,” Kosei Shindo, the chairman of the Japan Iron and Steel Federation, told a news conference.

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“Japan has been explaining that exports of the electric steel products from Japan had caused no injury to local industry, but China has rejected our claims,” Kosei Shindo, the chairman of the federation told a news conference.

As global stocks rallied, metals saw gains with them this week. The bounce that precious metals got from Brexit has largely been sustained and lead and other base metals have come with them despite neutral fundamentals.

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Yet skulking under this prosperity lies a specter that threatens to erode prices and even affect the positive performance of those stock markets: Chinese overproduction.

This week, more tariffs came down on Chinese steel products and the American Iron and Steel Institute testified before the U.S. Senate and said steel overproduction must stop.

The European Union. went so far as to tell China to stop subsidizing unwanted steel if it wants to achieve market economy status in the World Trade Organization, only to have bilateral talks collapse. The export quotas that China maintains have also led manufacturers to substitute out rare earths metals, now the E.U. and U.S. are asking the WTO to eliminate more Chinese export quotas. The U.S. and the E.U. teamed up against Chinese export quotas on base metals.

Free Download: The July 2016 MMI Report

So, even as metal prices look like they are rising, oversupply lies in wait.

American Iron and Steel Institute President and CEO Thomas Gibson said in a recent media conference call that the U.S. and other nations continue to experience economic impacts from the Chinese steel oversupply largely produced by China’s state-sponsored companies. He said policymakers must address the “root cause” of the problem.

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“We believe that the Chinese government has to get out of the steel business,” Gibson said, “and let its steel industry operate according to market principles.”

Gibson spoke July 13 on a conference call with the press.

In 2015, China’s production of crude steel fell 2.3% from 2014, according to the World Steel Association, but its share of the world’s production grew slightly to 49.5%. Gibson said China’s oversupply of steel reached 112 million metric tons in 2015 and added that some reports estimated excess production would increase this year. U.S. steel companies’ production fell 10.5% last year and approximately 10% of the workforce has been laid off.

Gibson said that nine of the 10 largest steel producers in China are state-owned. While these firms may be selling steel at a loss, China is directing state-owned banks to “continually refinance the debt” and also sweep the debts off the books and this is what’s keeping “zombie mills” open.

In an effort to address declining domestic demand, China announced that it would reduce steel production as much as 150 mmt over the next five years. Gibson said these promises are often empty as China made similar commitments in the past and “each time capacity has actually increased in China.”

Speaking a day after the press phone call to the Senate Banking Committee, Gibson said, “the surge in imports is a result of foreign government interventionist policies that have fueled global overcapacity in steel, more than half of which is located in China… While China is not the only source of the problem, the overcapacity in China is the greatest challenge facing the global steel industry today.”

Free Download: The July 2016 MMI Report

Gibson said China’s major steel firms reportedly lost more than $15.5 billion last year while still producing so much excess steel.