There is a lot of talk in the business press about trade agreements.

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Most of us skip such articles on our way to the sports pages as it’s that impacts on such a macro scale that it is of little relevance to us day to day, but that is to overlook the massive impact trade liberalization has had on our lives over the last twenty years.

Although the low-hanging fruit has already been plucked, further agreements could yet impact, for good and bad, in the years to come. Lawmakers are split on many lines over the issue. Some are intrinsically against liberalization on the basis that it can expose domestic industries to unfair competition from abroad, that by reducing trade barriers, it encourages off shoring and the export of jobs overseas. [click to continue…]

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According to a report, crude-steel output in China dropped 1.3% to 270.07 million metric tons in the first four months of 2015 as compared to the same period in 2014. The World Steel Association has forecast that China will end up using far less steel this year and maybe even the next. Which means more supply and far less demand due to China’s slowdown.

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The report quoted Alan Chirgwin, BHP Billiton iron ore marketing vice president, as saying steel supply was expected to rise by about 110 million metric tons this year, exceeding demand growth by around 40  mmt.

Yet this has not fazed Rio Tinto Group, for example, which recently announced it would continue with its plan to produce iron ore at full capacity despite the fall in prices. While BHP and Brazil’s Vale SA have, for now, stepped on the brakes vis-à-vis their medium-term plans, team Rio, on the other hand, thinks reducing production costs will help it hang on to its lead…and profits. [click to continue…]

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The Tiger and the Dragon: India and China Promise More Steel, Energy Cooperation

by Sohrab Darabshaw May 21, 2015 Commodities
The Tiger and the Dragon: India and China Promise More Steel, Energy Cooperation

When the Tiger and the Dragon dine together the world sits up and takes note.

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Signing business agreements worth $22 billion is a big deal so Indian Prime Minister Narendra Modi’s recent visit to China made big, bold headlines here. Some of India’s old, and some not so old (Adani, Bhusan Power and Steel), players in the steel and power sectors, were signatories to the 26 deals.

Steel and Energy Deals

The notable contracts included the one between India’s IL&FS Energy Development Co. and China Huaneng Group for a 4,000-megawatt thermal power project, and India’s Bhushan Power and Steel sealing a pact with China National Technical Import and Export Corporation for an integrated steel project in Indian province of Gujarat.

So here were two Asian, nee global, giants, breaking bread and talking business at the same table, sending analysts scurrying to their laptops to chalk out spreadsheets and draw pie charts in an effort to understand the impact of all this in the long term.

While business leaders of both nations, including Alibaba Group Chairman Jack Ma, spoke of long-term interests, such talk brought the arclight swinging back to the present and short-term situation currently prevailing in the Asian region, especially in iron ore and coking coke, two crucial ingredients in making steel.

There’s no doubt in anyone’s mind that steel is the mainstay of Asia’s infrastructure, a fact that has had iron ore and coal miners — and even steel majors in China, India and as so far as Australia — jockeying for a major piece of new market share. With demand from Europe and the US lacking, suppliers in all three countries are walking a thinly veiled tight rope to ensure their survival.

Wither Demand

Once a destination of hope, the Chinese dragon, for now, has lost some of its hunger. Some say next-door neighbor India is where one can find fresh action. The jury’s honestly still out on that one, though. But the slowdown in China’s economy means less need for steel, in turn, lowering the demand for ore and coking coal. Leaving miners re-tweaking their business plans.

Last year, for example, the Rio Tinto Group, BHP Billiton Ltd. in Australia, and Vale SA of Brazil, to stem the tide, had stepped up low-cost output to pump up volumes, leading to a glut. Now, everybody’s mantra seems to be – cut production costs faster than the falling prices.

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House Passes Two-Month Highway Trust Fund Extension, AK Steel Pays Severstal’s Bill

by Jeff Yoders May 21, 2015 Automotive

The transportation funding can got kicked down the road in Washington and a major steel company agreed to pay for a predecessor’s Michigan environmental infractions.

House Passes Short-Term Highway Bill

The House voted Tuesday to extend federal transportation funding for two months, in an attempt to prevent an interruption in the nation’s infrastructure funding at month’s end, the Hill reported.

Why Manufacturers Need to Ditch Purchase Price Variance

The decision to punt a long-term funding extension to the summer was approved by a 387-35 vote, over the objection of Democrats, who argued Congress should have found a way to pay for a longer-term extension.

Twelve Republicans and 23 Democrats voted against the bill. Rep. Mark Amodei (R-Nev.) voted “present.”

Ahead of Tuesday’s vote, White House officials said President Obama is willing to sign the temporary transportation funding extension if it is passes the Senate later this week, even though he would prefer a longer-term solution.

AK Steel Dearborn Pays Severstal’s Fines

AK Steel will pay $1.35 million to settle alleged air pollution violations at a Dearborn plant previously owned by the American subsidiary of Russia-based Severstal.

The Justice Department announced the agreement among the steelmaker, the federal government and the State of Michigan Wednesday, saying it settles 42 violations alleged by the state Department of Environmental Quality and two notices issued by the Environmental Protection Agency against Severstal North America.

AK Steel, based in Ohio, announced last summer its intention to purchase Severstal’s Dearborn coke-making facility and other assets for $700 million. Following the sale, completed in September of last year, AK Steel took responsibility for past violations.

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Precious Metals: Shy Recovery Thanks To a Weaker Dollar

by Raul de Frutos May 20, 2015 Commodities

The US dollar index has declined 6% since its peak in mid-March.

Why Manufacturers Need to Ditch Purchase Price Variance

This decline gave a boost to commodities and, of course, precious metals were not left behind. However, their upside moves look anything but impressive. Despite the weaker dollar, it seems as if precious metals are having a hard time moving away from their lows.

Gold prices rose a shy 6% since mid-May. The yellow metal is still near record lows. A bit more encouraging is the move silver is making, up 12% since mid-May. The grey metal, however, is still near record lows as well. The metal is trading at $17.71/oz and we’ll see if it can break medium-term resistance at $18.5/oz.

A bit more encouraging is the move silver is making, up 12% since mid-May. The gray metal, however, is still near record lows as well. The metal is trading at $17.71/oz and we’ll see if it can break medium-term resistance at $18.5/oz.

Platinum is up 7%. A very small movement compared to its huge decline since summer last year. The metal has a long way up to reach last year’s levels.

Palladium rose 8% after making a 1-year low in March. Palladium is clearly the best performer among precious metals but since summer of last year is also being dragged down with the rest of precious metals.

What This Means For Metal Buyers

Recent weakness in the dollar is giving a boost to precious metals. However, these price movements have been quite shy so far. It still makes sense to be long-term bullish on the dollar and bearish on precious metals.

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LNG Investments Quietly Transforming Transportation Infrastructure, Overseas Markets

by Jeff Yoders May 20, 2015 Commodities
LNG Investments Quietly Transforming Transportation Infrastructure, Overseas Markets

ast week UGI Energy Services announced plans to build a liquefied natural gas production facility in Wyoming County, Pennsylvania.

Why Manufacturers Need to Ditch Purchase Price Variance

The facility will draw Marcellus Shale gas from UGI’s Auburn gathering system, then chill it to produce up to 120,000 gallons per day in liquid form. While we have regularly reported the slowdown in both new shale oil and LNG projects in the US this year — and the subsequent cutbacks in oil country tubular goods production — investments are still being made, in the US and overseas, in drilling.

Plants, Projects Planned

Bloomberg Business reported this week that Anadarko Petroleum Corp. selected a group of developers including Chicago Bridge & Iron Co. for a potential $15 billion LNG project in Mozambique.

CBI’s joint venture with Japan-based Chiyoda Corp. and Saipem SpA, based in Italy, will work on the onshore project that includes two LNG units with 6 million metric tons of capacity each, Anadarko said Monday. Construction plans also include two LNG storage tanks, each with a capacity of 180,000 cubic meters, condensate storage, a multi-berth marine jetty and associated utilities and infrastructure, according to Texas-based Anadarko, which says it will make a final investment decision by the end of the year.

Last week, the Department of Energy gave Cheniere Energy Inc. final approval for the nation’s fifth major export terminal at Corpus Christi in Texas, which will ship the fuel from 2018.

What’s Driving Infrastructure Investment?

While oil prices have bounced back from lows seen earlier this year, it’s certainly not the market that’s driving these investments. While high-cost projects, such as those in Canada’s oil sands, have been canceled by oil exploration companies, relatively inexpensive projects with a quicker path to payback, such as these LNG projects, are still being funded.

The payback is diverse and not confined to domestic home heating. LNG has been priced at a fraction of diesel prices for the last four years. Domestic trucking (18-wheelers and other heavy consumers of diesel) have yet to make a large-scale commitment to LNG, and most places where fuel is dispensed have yet to put in expensive infrastructure to handle the product, but there has been enough success for UGI to justify committing resources to its adoption.

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Here’s a Good One: the US is ‘Dumping Steel’ in Europe… Seriously

by Stuart Burns May 20, 2015 Anti-Dumping
Here’s a Good One: the US is ‘Dumping Steel’ in Europe… Seriously

OK, got over laughing yet?

Why Manufacturers Need to Ditch Purchase Price Variance

Yes, the European Union will impose anti-dumping duties of up to 35.9% on imports of a grade of electrical steel from China, Japan, Russia, South Korea and, yes, the United States, which those countries are allegedly selling at below cost.

European Commission Acts

According to Reuters it is the EU’s second set of measures this year to protect European steel producers such as ArcelorMittal, Stalproduckt STP, ThyssenKrupp and Tata Steel UK. Apparently the European Commission has just set tariffs on imports of grain-oriented, flat-rolled electrical steel (GOES, for those of you that regularly read our MMI coverage) following a complaint lodged in June 2014 by the European steel producers association, Eurofer.

The duties are provisional, pending the outcome of an investigation due to end in November, but as we all know the moment a duty looks like a real possibility importers stop importing in case they get caught retroactively. Normally, such duties would then continue for five years, the paper reports.

More specifically duties of 28.7% will cover imports from Chinese companies, including Baosteel and Wuhan Iron and Steel Corp. and of 22.8% from South Korean producers such as POSCO. The rate for US producers including AK Steel is 22% and for Russian firms such as NLMK 21.6%.

Meanwhile, Japan’s JFE Steel Corp. will face duties of 34.2% and Nippon Steel and Sumitomo Metal Corp., among others, 35.9%. Eurofer is quoted as saying the dumped imports have damaged the EU industry by driving prices to below the costs of production, causing substantial losses. It said the market share of dumped imports into the EU rose to 47% in 2012, with most from Japan and Russia.

2nd Anti-Dumping Action This Year

This action follows anti-dumping duties being applied in March to flat-rolled stainless steel from China and Taiwan, a new investigation into specific grades of steel rebar and attempts to prolong the existing duties on Chinese wire rod.

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Tier-1 Manufacturers and Direct Procurement Execution: Collaboration, Integration, Visibility

by Kyle Fitzsimmons May 20, 2015 Manufacturing

Managing indirect spend is crucial for controlling costs. It is also a proven tactic. But direct connectivity still has a ways to go in aligning with indirect procurement. In a relevant piece of new research from our sister site Spend Matters, the team lays out just why direct procurement execution systems need to integrate visibly between tier-1 manufacturers, logistics providers, banking partners, MSPs, BPO firms, raw materials suppliers and more.

Direct Procurement Execution: What’s Changing? That’s the question answered in this FREE research download that encourages supply chain collaboration and Procure-to-Pay (P2P) integration in even the most complex ecosystems.

Get your copy today!

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Tata Steel Reports $888 Million Loss, ABI Slips in April

by Jeff Yoders May 20, 2015 Commodities

An Indian steel major reports a loss and architecture billings slip in April.

ABI Down

The Architecture Billings Index (ABI) dropped in April for the second month this year. As an economic indicator of construction activity, the ABI reflects a nine to 12 month lead time between architecture billings and construction spending.

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The American Institute of Architects (AIA) reported the April ABI score was 48.8, down sharply from a mark of 51.7 in March. This score reflects a decrease in design services (any score above 50 indicates an increase in billings).

Tata Reports a Loss

Tata Steel Ltd. reported on Wednesday a consolidated quarterly loss of $888.8 million (56.74 billion rupees) for its fiscal fourth quarter ended March 31.

Consolidated net sales for the quarter fell about 21% from a year earlier to 333.4 billion rupees, hit by weak steel prices and international demand.

The results follow the company’s announcement last week of about $785 million non-cash charge in the fourth quarter, mainly related to its loss-making long products unit in the UK.

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Anti-Dumping Action Against Chinese Coil Could Raise Short-Term Steel Prices

by James May May 19, 2015 Anti-Dumping

As coil import arrivals drop off (the arbitrage for speculative tonnage disappeared in 2015, but it takes 3-4 months for physical arrivals to catch up), we expect that metal service centers will be back in the purchasing game over the next quarter.

Why Manufacturers Need to Ditch Purchase Price Variance

Crucially however, they do not need to buy in big volume, but expect to see steadier business filling in holes in certain products rather than big blanket buys. That trend would be supported by a stronger economic environment than in Q1.

That will mean the initial going for a price increase in hot-rolled or cold-rolled coil will be tough sledding, but we expect prices in the short-term to hit the $470 per ton target by the end of this month.

Despite probable attempts by mills to increase the price again, we believe that coil will fluctuate around this price through the second quarter, as distributors have plentiful inventory and are well-stocked with lower-priced (import) coil that is competitive. Moreover, too aggressive a price move will bring imports back in as there is plenty of cheap coil around.

Once that inventory is cleared, however, thanks to lower imports and cuts in domestic production, we expect a moderate gain in pricing in the second half of the year – back over $500/ton.

One wild card that we would consider a trigger for further price gains is an anti-dumping filing against Chinese, Indian and potentially other sources on CRC and HDG. Chinese supply of CRC was 6% of the US market in 2014 while Chinese and Indian supply of HDG was a combined 8%.

This is not insignificant, but highlights that this will not be a cure-all for the sector, although we suspect that if the US mills do go for a filing, they will blanket the market and try to pick up other suppliers in their net, such as Korea, Taiwan, Brazil and Russia that will account for a few more percentage points.

Our view remains that anti-dumping action is “whack-a-mole” to some extent with other non-named suppliers popping up as alternatives. Nevertheless, the removal of China, in particular, would result in some of the really low-priced coil exiting the market and the Chinese are looking to some extent to develop a long-term customer base of end-users that would be detrimental to US mills.

As such, we believe that a filing would help US mill volumes (at least initially), although we believe that the pricing impact would be short-term at best.

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