Steel

U.S. automakers’ sales figures for March came in below market expectations and gave early evidence that America’s long boom cycle for automotive sales may finally be losing steam. Automakers sold 1.56 million new cars and trucks in March, a 1.6% decline compared with the same month a year ago.

Ford Motor Company took the biggest hit among sales drops, seeing its March numbers fall more than 7% from February’s.

Industry consultant Autodata put industry Seasonally Adjusted Annual Rate at 16.62 million cars, trucks and SUVs for March.

That was below the 17.3 million analysts polled by Reuters had expected, and the first time since August that the SAAR – a crucial industry metric – had fallen below 17 million.

General Motors had the best month, reporting a 2% increase in sales to just over 256,000 vehicles, with sales of its Tahoe and Suburban SUV models seeing their best sales month since 2008.

Sales at Ford Motor Co. fell the aforementioned 7+% to 236,000 vehicles, with fleet sales to rental agencies, businesses and government entities down nearly 17% on the year. Sales of Ford’s F-Series pickup trucks rose 10% but that simply could not offset the losses elsewhere. Sales at Fiat-Chrysler Automobiles fell 5% in March. Automotive sales in the U.S. risen since end of the 2008 recession and hit a record last year of 17.55 million last year. Toyota Motor Corp. and Honda Motor Co. reported smaller losses.

The fall in new car sales is even more curious considering that consumer confidence is at its highest level since 2000. Could the level of vehicle replacement that had driven sales since 2008 finally be falling? Vehicle inventories at dealerships have risen to the highest point since 2004, according to Edmunds.com.

If auto sales have, indeed, plateaued, then prices for automotive steel and aluminum could as well, at least in the expansive U.S. market. Our Automotive MMI remained flat this month at 88.

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Editor’s note: We have restated the March Construction MMI to 80. An error in tabulation last month caused us to under-report it at 77. MetalMiner regrets the error.

U.S. developers opened up their wallets in February and construction spending increased to the highest level of spend in nearly 11 years, led by more building of homes, highways and schools.

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Our Construction MMI remained at its corrected score of 80 this month.

Construction MMI

Construction spending rose 0.8% to $1.19 trillion in February to the highest level since April 2006, after two months of declines, the Commerce Department said. New home sales remained strong despite a rather steady supply of newly constructed houses, apartments and condominiums coming onto the market.

Spending on new home building, as well as renovations, rose nearly 10% in the final three months of 2016, the most in a year.

The biggest move, though, came from government construction projects. State and local governments spent 0.9% more on construction, driven by roads, schools and recreational buildings.

The federal government actually cut construction spending for the second straight month and has cut back 9% from a year ago but that could soon change if an infrastructure plan emerges this year in Washington, D.C. President Donald Trump has pledged to boost infrastructure spending by $1 trillion over the next decade. Trump has focused on healthcare and now, apparently, tax reform.

Meanwhile, the Institute for Supply Management said its index of national factory activity fell to a reading of 57.2 last month from 57.7 in February, which was the highest since August 2014.

Any reading above 50 still indicates an expansion in manufacturing, which accounts for about 12% of the U.S. economy and construction materials such as steel framing and rebar are counted in ISM’s factory output numbers.

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17 Of the 18 manufacturing industries reported growth and no industry reported a contraction. Comments from factories were mostly upbeat, with machinery manufacturers saying that business was up 10 to 15%.

Optimism about relaxed regulation and the generally pro-business approach of the Trump administration still seems to be buoying both construction and consumer spending but if Trump cannot implement his agenda this optimism could quickly wane. An infrastructure plan that can make it through the Congress continues to be a necessary priority for metals manufacturers and the economy at large.

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Last week, the Trump trade agenda finally took off as the Commerce Department, now officially led by billionaire Wilbur Ross, finalized new carbon and alloy steel plate anti-dumping duties and President Donald Trump had some choice words as he signed two new executive orders he says will level the international trade playing field for U.S. manufacturers.

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“There’s never been a systematic examination, country by country and major product by major product, of why do we have the deficit,” Ross said during an interview on “Sunday Morning Futures” on Fox News with Sandra Smith, who was sitting in for host Maria Bartiromo.

“There’s a lot that’s due to cheating, there’s a lot due to dumping, there’s a lot that’s due to subsidies that are illegal, lot to do with a lot of things that are not inherent in free trade,” he continued.

Ross cited entities, many of which were created purely to facilitate exports, that go out of business before duties are collected as one situation that leads to lax enforcement of existing anti-dumping and countervailing duties orders, what the other executive order instructed commerce to accomplish.

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The new executive orders come just as President Trump will meet this week with Chinese President Xi Jinging at Trump’s Mar-a-Lago resort in Florida. It’ll be Trump’s first face-to-face meeting with Xi, after a campaign that was highly critical of U.S. trade with China.

Carbon and Alloy Steel Plate Duties

Commerce had a busy week, announcing affirmative final determinations that steel producers in Austria, Belgium, France, Germany, Italy, Japan, the Republic of Korea (South Korea), and Taiwan are dumping imports of carbon and alloy steel plate in the U.S.

Liquid steel.

Innovation in steelmaking is coming from novel uses of liquid metal. Source: Adobe Stock/Photollug.

One South Korean steelmaker is seeing significant business returns as a result of rising steel prices.

According to a recent report from Reuters, POSCO, the steelmaker in question, said its estimated Q1 operating profit likely grew 82%, far exceeding analyst expectations. The reason? Rising steel prices outpacing raw material cost growth.

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It is also worth noting that POSCO’s (formerly the Pohang Iron & Steel Company) estimated revenue grew 17% in Q1 with final Q1 numbers expected to be reported sometime in April.

Steel Industry Rallying Behind President Trump

Our own Jeff Yoders reported this week the American Iron and Steel Institute stands firmly in the corner of the Trump administration in supporting its executive actions against regulation. The AISI released a statement supporting the executive action lifting the Environmental Protection Agency‘s Clean Power Plan.

“The domestic steel industry has made substantial gains in reducing our energy usage as well as our environmental footprint, and we remain committed to our sustainable performance,” said Thomas J. Gibson, president and CEO of AISI. “However, these burdensome regulations could harm the international competitiveness of energy-intensive, trade-exposed U.S. industries like steel.’

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The seesaw battle between steelmakers in China and India took a new twist recently with a report in a Chinese newspaper calling the Indian government on its “protectionist” stance on steel.

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The state-run Global Times newspaper said in a report, referring to India’s decision to award its first bullet train project to Japan, that India needed to have a “sober” look vis-a-vis China when it came to solutions for India’s proposed railway network revamp or its entirely new high-speed rail project.

The high-speed “bullet train” project is likely to commence in 2018 on a 315-mile (508-kilometer) route between Mumbai and Ahmedabad. It’s slated to be completed by 2023.

India has been waging a war against cheap steel imports into the country for some time now, with Chinese steel companies high on their bad guy list. The government imposed taxes in various forms not to protect its own steel industry, but to equalize import prices to production costs. Over 80% of the funding for the project is coming from Japanese investments. Read more

I had the pleasure of attending the S&P Global Platts Steel Markets North America conference held recently in Chicago.

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The general outlook at the conference for steel markets in the year ahead was notably optimistic, although each of the initial speakers differed in who and/or what the audience should pay attention to in the coming months and years.

Conference keynote speaker, Herb Black, CEO of American Iron & Metal Company had his eyes on Turkey and its burgeoning scrap market. Timna Tanners, Managing Director of U.S. Metals and Mining at Bank of America Merrill Lynch, encouraged the audience to focus on China, while Beth Ann Bovino, Chief U.S. Economist for S&P Global Ratings, spoke to present macroeconomic conditions with a watchful eye on the current administration and potential post-election policy changes. Read more

The American Iron and Steel Institute praised the executive action taken by President Donald Trump today to, among other things, essentially undo the Environmental Protection Agency‘s Clean Power Plan.

The AISI said in a statement that today’s executive orders will begin the process of “revising and overturning several onerous environmental regulations designed in the previous administration that could adversely impact the competitiveness of domestic steelmakers,” the trade organization said.

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It directs the EPA to review and revise regulations of greenhouse gas emissions from electricity generating utilities. The Clean Power Plan was challenged in court and it has not yet gone into effect but it would have required utilities to cut emissions.

“The domestic steel industry has made substantial gains in reducing our energy usage as well as our environmental footprint, and we remain committed to our sustainable performance,” said Thomas J. Gibson, president and CEO of AISI. “However, these burdensome regulations could harm the international competitiveness of energy-intensive, trade-exposed U.S. industries like steel.’

This part two of our sit down with Steel Manufacturers Association President Philip K. Bell at the recent S&P Global Platts Steel Markets North America conference here in Chicago. Bell currently serves on the Department of Commerce International Trade Advisory Committee on Steel (ITAC 12), advising the Secretary of Commerce and United States Trade Representative on trade policy, trade agreements, and other trade related matters that benefit U.S. businesses, workers, and the economy.

Jeff Yoders: You mentioned that the proposed border-adjustment tax is something you have to be very, very careful about.

Philip K. Bell: Ironically, when I look at things the administration should prioritize, I would really like to see infrastructure rise higher on that top five list as opposed to things like a healthcare repeal because that’s one clear way that you can jump start the steel industry.

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Philip K. Bell

Philip K. Bell. Source: SMA

The steel industry, to me, if you look at it in the simplest terms, is based on cost and demand. You can help lower steel producers’ costs by reducing taxes and regulatory burdens, but you can increase demand by having this $1 trillion infrastructure plan and that would be very important. Making sure you deal with countries that dump, subsidize exports, etc. would also help.

JY: Using countervailing duties, anti-dumping duties and the existing tools commerce has, right?

PB: Right.

JY: I asked Chad Utermark, executive vice president of Nucor, what, exactly, their representatives had heard about when we might get to see the ideas for an infrastructure bill precisely because of that. This seems like a slam dunk for economic growth for all the industries that support construction. Why isn’t it being pushed more?

PB: We certainly would like to see infrastructure investment made a higher priority. I love the idea of public-private partnerships. The P3 approach is good, you’re going to bring better managerial skill with people who can manage the entire supply chain of infrastructure investment. Keep in mind, infrastructure can be financed this way, but it also needs to be funded (to an extent by the government). There are some infrastructure projects that are very important but might not appeal to private investors. They might not be easy to get done. Read more

We had a chance to sit down and discuss the issues facing members of the Steel Manufacturers Association with SMA President Philip K. Bell at the recent S&P Global Platts Steel Markets North America conference here in Chicago. Bell also currently serves on the  Department of Commerce International Trade Advisory Committee on Steel (ITAC 12), advising the Secretary of Commerce and United States Trade Representative on trade policy, trade agreements, and other trade related matters that benefit U.S. businesses, workers, and the economy.

Philip K. Bell

Philip K. Bell. Source: SMA

Jeff Yoders: We’ve heard a lot about North American Free Trade Agreement and what changes to it might mean in the last two days. How do your members feel about reopening NAFTA to changes?

Philip K. Bell: NAFTA is over 20 years old and it’s probably time to look at it again. A lot has changed over the last two decades. We hope the approach that the administration takes is one that’s more methodical and takes into account that not only are Canada and Mexico two of our biggest trade partners but, when it comes to the steel industry, they ARE our two largest trade partners.

There is a lot of integration in this area. You have a lot of steel producers that either have businesses in Mexico such as Gerdau, ArcelorMittal and Nucor — through its joint venture JFE — and you have a lot of companies that want to do business there like Steel Dynamics which is hoping to increase its presence in that market by importing flat-rolled into Mexico. Read more

US Cold-rolled coil prices since 2012. Source:MetalMiner IndX

U.S. Cold rolled-coil prices rose to their highest levels since March of 2012 this week. Spot steel prices saw some upward action in January, however, prices really came under pressure in early February.

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In March, U.S. steel mills are pushing for another round of price hikes. So far, they seem to be succeeding.

China Steel Prices

Hot-rolled coil price spread. Source: MetalMiner IndX

Back in November, we predicted a surge in steel prices as we moved into the new year. When international steel prices rise, U.S. mills can more easily justify a price hike. Chinese prices set the floor for international prices. Last summer, U.S. steel prices declined sharply while Chinese prices held well. That caused the international price arbitrage to come down to normal levels.

The price arbitrage started to widen again this year as momentum in U.S. steel prices picked up. However, the arbitrage is still relatively narrow compared to historical levels, especially in hot-rolled coil. Therefore, U.S. mills still have some room to hike prices. Still, for the rally to be sustained throughout the year, Chinese steel prices will need to keep rising.

Falling Chinese Steel Exports

In January, Chinese steel exports fell near 24% compared to the same month last year. In absolute terms, January steel exports were at their lowest level since June 2014. Exports fell by double digits in the last four months of 2016. While more countries act against the threat of a flood of Chinese steel, we could see further moderation in exports this year, which bodes well for global steel markets. What’s surprising is that exports have falling despite rising output.

According to the data released by the World Steel Association, China’s January steel production rose 7.4% to 67 mmt while global steel production rose 7% from a year ago. In addition, China’s operating steel capacity increased in 2016, since most of the announced cuts in capacity were already idle.

So far, solid demand in China has absorbed the increase in output, or at least most of it. The Caixin Manufacturing PMI in China rose to 51.7 in February, beating market expectations and marking the eighth-straight month of growth. In addition, there are rumors that China is stocking its excess steel production. According to SteelHome, hot-rolled coil and rebar inventories in China have surged so far this year.

All About Production Cuts

In conclusion, U.S. mills could continue to raise prices in the short-term. However, for a sustained bull market in steel prices, Chinese steel prices will have to rise as well. China’s domestic demand looks strong, but it won’t be enough to support a rising price trend in the face of rising output.

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Beijing has ordered curbs on steel and aluminum output in as many as 28 northern cities during the winter heating season, as it steps up its fight against pollution, but we need to see if those cuts actually materialize this year. China will need to intensify its efforts to curtail excess steel capacity. Otherwise, if production continues to grow unabated, it could hamper this price recovery.