Steel

The contract season has already started and steel prices have yet to react. Although domestic steel prices increased during the last week of October and the first of November, prices fell again last week.

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Source: MetalMiner data from MetalMiner IndX(™)

Steel prices have traded flat for most of 2017. Prices, however, started to weaken during Q3. We still want to see more upward price movements before changing the steel outlook.

Chinese Steel Industry

Of course, Chinese steel prices and production serve as the primary drivers of the world steel industry.

According to data released by the National Bureau of Statistics, Chinese daily steel output decreased by 2.5% in October. Capacity curtailment in the steel industry has finally resulted in less steel output from that market.

Some regions, such as Hebei province, plan to continue the steel capacity cuts until 2020, further reducing production by up to 20 million tons.

Source: MetalMiner data from MetalMiner IndX(™)

The spread between U.S. HRC prices and Chinese HRC prices has fallen again this month.

In addition, all forms of steel in China except CRC saw price declines. Even if the decrease in Chinese prices appears less steep than the U.S. decline, we want to see more price movements to the upside before drawing any conclusions.

What This Means for Industrial Buyers

Steel price dynamics may recover at some point this month. Therefore, buying organizations will want to pay close attention to Chinese price trends and domestic lead times.

To read more about our longer-term steel price trends, download our free Annual Outlook.

To understand how to adapt your buying strategy this season, take a free trial now or subscribe to  the Monthly Outlook for a short-term analysis.

President Donald Trump may not have said much, if anything, about China’s steel exports during his recent tour. Both European and U.S. legislators, however, are carrying out investigations into not just simple dumping but more complex and illegal activities, such as shipping via third parties to hide the origin and avoid pre-existing dumping tariffs.

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A Reuters article this week explains how the European Union’s anti-fraud office (OLAF) said it has found Chinese steel was shipped through Vietnam to evade the bloc’s tariffs.

In part, the current case may be a matter of timing.

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Welcome to the (re)launch of the MetalMiner Podcast!

(We’re calling it a relaunch because, well, remember this?)

With everything that’s been happening on the international trade policy front over the past year, we wanted to give metal buying organizations more insight into the issues they may not be reading or hearing enough about — or at all — in the mainstream B2C media.

What better way to do so than go straight to the source — or sources — and interview some key movers and shakers on the manufacturing and policy fronts? So we’re starting a brand-new series called “Manufacturing Trade Policy Confidential.”

New Series: Manufacturing Trade Policy Confidential

In this first episode of the series, MetalMiner Executive Editor Lisa Reisman interviews Michael Stumo, CEO of the Coalition for a Prosperous America.

Stumo’s concerns, and those of his organization, cut across industry sectors and political leanings. In this conversation, Stumo outlines what he sees as the most crucial elements to consider in today’s trade environment, touching on everything from China to the German Mittelstand to Alexander Hamilton as economic visionary.

Manufacturing Trade Policy Confidential: Background

If you’ve visited MetalMiner’s digital pages over the past several months, you’re no stranger to the phrase “Section 232” — shorthand for the U.S. Department of Commerce investigation into whether certain steel imports constitute a national security risk, under the namesake section of the U.S. Trade Expansion Act of 1962.

The outcome of the investigation (findings from which were slated to come down last summer but have been delayed) could have significant effects on upstream and downstream manufacturing organizations, ranging from metal producers to buying organizations – even the mom-and-pops.

But Section 232 is only one small part. Trade circumvention, China’s non-market economy status, domestic uncertainty amidst proposed tax plans and many other issues have pushed us to start this new podcast series.

We’ll be publishing several more interviews in the coming weeks and months – stay tuned!

Follow the MetalMiner Podcast on SoundCloud.

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The European Steel Association (Eurofer) had good news about the EU steel sector last week, albeit with a caveat.

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According to a report from Eurofer last week, EU investment in steel and its exports have trended positively.

“Strengthening investment and robust exports are boosting the performance of steel-using sectors in the EU,” the report states. “Steel demand is expected to continue its gradual recovery in 2018.”

The report continues with a caveat.

“However, increasing import pressure in in the second quarter of 2017 signals that foreign supply remains a critical issue for the EU steel sector.”

Steel consumption in the EU dipped slightly in the second quarter compared to the first quarter, according to the report. As a result, EU domestic suppliers suffered. Deliveries by EU domestic suppliers in the second quarter fell 3.5% year-over-year. In addition, third country imports rose by 10% year-over-year.

“The relative balance between growth in domestic and foreign supply seen in the first quarter of 2017 was reversed at the expense of EU steel mills,” said Axel Eggert, director general of Eurofer, in a prepared statement. “Despite a reduction in imports from China and several other countries owing to corrective anti-dumping duties put in place third country import volumes have risen again in the second quarter.”

Overall, however, EU steel consumption for 2017 is forecast to rise 2.3%. The report also notes that steel demand is expected to continue its “gradual recovery” into next year (a recovery dating back to 2014). The report cites the “expected rise in real steel consumption in the EU market and very modest support from the stock cycle” as factors underpinning the ongoing bounceback.

As for steel-using sectors, the report states production activity grew by 3.1% year-on-year. Moreover, first-quarter growth was revised up to 6.3% (compared to the same period in 2016).

“We welcome the healthy performance of relatively steel-intensive sectors,” Eggert said in the release. “These include the automotive and engineering industries, as well as tube manufacturers, over the first half of 2017. Growth in the construction industry was the strongest it has been for many years and clearly reflects improving fundamentals in this important steel-using segment.”

Eurofer expects total output to continue to trend positively throughout the remainder of the year, building on the momentum of the first half. Total output is forecast to rise by 4.2% for the year, according to Eurofer.

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Despite import pressures, the total economic picture for the EU bloc leaves room for optimism. Eurofer’s October outlook forecasts GDP growth of 2.1% this year and 1.9% for 2018.

“The business climate looks set to remain supportive to continued healthy investment growth, whereas private consumption growth is foreseen to slow down somewhat,” the report states. “In combination with stable growth of government consumption, domestic demand will be the major driver of economic growth in the EU.”

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This morning in metals news, growth in China’s steel industry has slowed down significantly, U.S. steel production was up 8.6% year-over-year and a Russian firm launches a new copper and gold mine near the Chinese border.

Chinese Steel PMI Falls to 6-Month Low

The Chinese steel Purchasing Managers’ Index (PMI) fell to a 6-month low this month as the government attempts to curb pollution, according to a Reuters report.

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This month, the PMI dropped to 52.3 from 53.7.

U.S. Steel Production Up 8.6%

Through the month of September, U.S. steel production was up 8.6% year-over-year, according to a report by the Northwest Indiana Times.

According to the report, citing stats from the World Steel Association, steel output rose by 5.6% internationally in September compared to September 2016.

Russia’s Norilsk Opens New Mine Near Chinese Border

The Russian firm Norilsk Nickel has launched a new copper, iron and gold mine near the Chinese border, according to Reuters.

The project, situated about 250 miles by rail from the border, will send iron ore exports to China.

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Chinese copper demand continues to be strong. According to the report, Shanghai copper futures have surged 18% this year.

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So far this year, the U.S. has imported 19.6% more steel than it did through the same time frame last year, according to data released by the American Iron and Steel Institute (AISI) on Wednesday.

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According to preliminary Census Bureau data cited by AISI, through the first nine months of 2017, total and finished steel imports amounted to 29,663,000 and 22,890,000 net tons (NT), respectively. Compared with the first nine months of 2016, total and finished steel imports are up 19.6% and 15.7%, respectively.

Finished steel import market share was an estimated 27% in September, a percentage point below the 28% year-to-date market share. Estimated finished steel import market share peaked in June — around the same time as the Trump administration’s first self-imposed Section 232 steel probe deadline, which came and went without a decision (and remains outstanding) — when it eclipsed the 30% mark.

Source: AISI

By item, a number of steel product imports jumped significantly in September compared with the previous month. Those spikes include: reinforcing bars (up 85%), line pipe (up 35%), tin plate (up 31%), oil country goods (up 23%) and plates in coils (up 11%).

In the year to date, imports of oil country goods (up 255%), line pipe (up 60%), standard pipe (up 45%), mechanical tubing (up 32%), cold rolled (up 28%), sheets and strip all other metallic coatings (up 26%), sheets and strip hot dipped galvanized (up 22%) and hot rolled bars (up 19%) all posted notable increases. 

South Korea once again emerged as the top steel exporter to the U.S. last month. In descending order by volume, the top exporters to the U.S. were: South Korea (321,000 NT, down 11% from August), Japan (169,000 NT, up 32%), Germany (151,000 NT, up 53%), Taiwan (120,000 NT, down 2%) and Turkey (112,000 NT, up 5%).

South Korea also leads the way through the first nine months of the year, sending 2,949,000 NT to the U.S. (down 2% versus the same period in 2016), followed by Turkey (1,944,000 NT, up 5%), Japan (1,234,000 NT, down 14%), Taiwan (1,026,000 NT, up 36%) and Germany (1,001,000 NT, up 6%).

Speaking of Section 232, the Trump administration’s probe of the national security implications of steel imports, the wait continues for a ruling. The probe, launched in April, carries a Jan. 15 deadline. At that point, Commerce Secretary Wilbur Ross is required to present the president with a report detailing findings and recommendations. If Ross determines the imports are a threat, the president then 90 days to decide if he agrees and whether or not to use his statutory authority to adjust import levels.

Mid-summer optimism from domestic producers, who expected the Trump administration to enact some sort of trade remedy (whether in the form of tariffs, quotas or a combination of the two) has waned. With NAFTA, health-care reform, tax reform, immigration and a number of other issues dominating the administration’s focus, Section 232 chatter has seemed to die down in recent months.

U.S. steel producers are still holding out hope for Section 232 action addressing the rise of imports. Nucor CEO and Chairman John Ferriola touched on the issue of imports during the company’s third-quarter earnings call last week.

“Nucor continues to believe significant work remains to be done to achieve free and fair trade for U.S. manufacturers,” Ferriola said during the call. “More specifically, it’s time for comprehensive and broad-based remedies that address the illegal foreign trade practices that have materially weakened our nation’s economic vitality.”

The last Section 232 probe took place in 2001, when the George W. Bush administration looked into imports of iron ore and semi-finished steel. Ultimately, it was determined those imports did not pose a threat to the country’s national security.

Free Download: The October 2017 MMI Report

This time around, U.S. producers are hoping for a different determination.

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Forecasts made by the World Steel Association in its latest October Outlook paint a relatively rosy picture for the global steel industry — not least because it’s not all about China.

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The outlook predicts that growth outside of China will be 2.6% this year and rise to 3% in 2018. China’s figures, by comparison, have been skewed by a statistical sleight of hand.

A Caveat in the Chinese Numbers

Chinese demand is forecast by the World Steel Association to grow by 12.5% in 2017. A large part of this, however, is due to the closure of Chinese induction furnaces this year, creating demand at state-owned conventional steelmakers. “Illegal” induction furnace numbers didn’t appear in the statistics, but legal, state-owned conventional steelmakers figures do.

A true figure for the underlying growth is more like 3%, with next year expected to be flat as stimulus measures fade and the economy continues to rebalance away from infrastructure investment and toward consumption.

Global Growth

The good news from the report is that the World Steel Association expects growth in both developed and emerging markets to be widely distributed and broadly positive.

The European Union is expected to see demand grow at 2.5% this year, while the other major trading blocs, such as NAFTA, should grow by 4.9% and the ASEAN region by 4.8%. Demand growth in India, the world’s No. 3 producer, continues to outstrip that of Japan, the world’s No. 2 producer. The WSA expects growth in India this year to be 4.3% compared to 2.9% for Japan. A bullish economic Times of India article suggests India is on track to overtake Japan as the world’s second-largest global steel producer within this decade.

Demand growth across the Americas has been solid this year, with the U.S. putting in a substantial 4.8% number and contributing over 69% of the NAFTA region’s 139 million tons.

China remains the world’s largest producer by a country mile — so growth, or not, here in 2018 will likely determine the overall direction of the global steel market.

Much will depend on how demand unfolds as the economy continues to cool and possibly face disruption this winter from enforced environmental closures.

After a Strong 2017 for Steel Producers, What’s Next?

Broadly, though, this year has been a good one for steel producers.

Crude steel capacity utilization jumped 2.8% to 73.5% last month, which is not fantastic but is heading in the right direction.

With the prospects of significant short-term cuts in China’s production capacity this winter, producers elsewhere must be hoping prices can rise in 2018. Much will depend on continued growth and discipline among producers.

Free Download: The October 2017 MMI Report

It will be an interesting next six months.

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This afternoon in metals news, European steel demand is expected to grow 2.3% this year, Bloomberg takes a look at the Trump administration’s “Made in America” pledge and Freeport-McMoRan is working with the Indonesian government to resolve a mining permit dispute.

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European Steel Demand to Grow 2.3%: Eurofer

The European steel association Eurofer predicts 2.3% growth in 2017 for European steel demand, according to a Reuters report.

The European steel industry is worth about 170 billion euros a year, according to the report.

Made in America?

Among other things, President Donald Trump has pushed a “Made in America” agenda, aiming to boost domestic industry.

But, in practice, has there been a rise in U.S.-based production? A Bloomberg report outlines the reality of rising steel imports and pipeline contracts increasingly being won by Russia’s Evraz.

Freeport, Indonesia Look to Settle Permit Dispute

Richard Adkerson, chief executive of copper miner Freeport-McMoRan Inc., said on Wednesday that the miner wants to avoid arbitration vis-a-vis a mining dispute in Indonesia.

Free Download: The October 2017 MMI Report

Freeport is looking to renew the permit for its Grasberg copper and gold mine.

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Chinese steel output is falling, according to The New York Times.

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Crude steel output hit 71.83 million metric tons in September, the lowest since February and down from 74.59 million tons in August, according to National Bureau of Statistics data last week. September’s average daily output was 2.39 million tons, down 0.8% from August (but still 5.3% higher than in 2016).

After a year in which mills have been cranking out every ton they can muster and prices have been booming on the back of plant closures, the recent fall in output is telling.

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This morning in metals news, steel production through Oct. 7 is up for the year, the Kobe Steel scandal continues and India’s steel capacity could more than double by 2030.

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U.S. Steel Production Outpaces 2016 Levels

According to data from the American Iron and Steel Institute (AISI), U.S. steel production through Oct. 7, amounting to 69,545,000 net tons, is up 3.7% compared with the same time frame last year.

Production in the week ending Oct. 7 amounted to 1,741,000 net tons, up 5.2% from the same period in 2016 and up 2.1% from the week ending Sept. 30.

Kobe Steel in Hot Water

Kobe Steel’s troubles could be extending beyond aluminum and copper.

The data falsification scandal is now touching iron powder products, according to the Nikkei Asian Review.

Earlier this week, Kobe Steel admitted it altered inspection certificates to falsely show that certain aluminum and copper components had satisfied client specifications for strength, the Review reported.

India Steel Capacity Rising

According to the Economic Times, India’s steel capacity will more than double by the end of 2030.

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Steel Secretary Aruna Sharma said capacity, currently at 126 million tons, is expected to hit 150 million tons by 2021 and 300 million tons by 2030.