tablet-point-to-beijing-china

The American Iron and Steel Institute (AISI) 2015 General Meeting closed just yesterday here in Chicago, where steel industry folks on the producer and service center sides (to name a couple) came together to discuss key issues surrounding the US steel market landscape, while leaving a crucial issue explicitly unmentioned – but we’ll get to that in a bit.

Of course, we can’t really forget China. Nucor Corp. CEO John Ferriola was joined by AK Steel CFO/SVP Finance Roger Newport; Regulo Salinas, vice president at Ternium Mexico SA, Jim Baske, CEO ArcelorMittal North America Flat-Rolled, Chuck Schmitt, EVP and head of SSAB Americas and AISI President and CEO Thomas J. Gibson in creating a united front “in the call for a flattened playing field between US producers and foreign companies exporting to our shores, particularly those from China,” according to my colleague Jeff Yoders, who covered AISI’s press briefing at the Fairmont Hotel on Monday.

Ferriola said 4 million people whose livelihoods depend on the steel industry are at risk, but also that enforcing existing trade and anti-dumping laws consistently would make a wealth of difference for today’s producers, as Jeff wrote in his dispatch. “The first step is enforcing existing law as written,” he said at the briefing. “Legally and consistently enforcing the laws on the books would help immensely… The American worker is still the most efficient worker in the world. We have relatively inexpensive energy, we have the raw material available, we have the best market in the world. When you look at those natural advantages, it makes no sense we should be operating at 60-70% capacity while the rest of the world is overproducing.”

RELATED: Download our latest free steel price trends report.

While Ferriola’s right on all the above, let’s home in on one phrase in the above quote: “We have relatively inexpensive energy.”

It’s true that the US is in a unique position as far as access to energy and reasonable pricing go…for now. However, the pricing part may soon change. How?

Energy Prices and Regulation in the United States

Natural gas prices, electricity prices and US steel production are all in bed together, loosely speaking, and it’s increasingly hard for one to get out from under the warm covers without disturbing the others.

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Seems that somebody forgot to tell the automotive metals that the bear market was still going on this month. Strong aluminum and high-strength steel demand, and end-user purchases, have again made auto the standout in a field of mostly down markets.

After flattening in April, the monthly automotive MMI® registered a value of 87 in May, an increase of 2.4% from 85 in April. A big factor was the performance of aluminum coil on the index, as its index broke resistance and soared as well.

Pool 4 Tool’s Automotive SRM Summit

China removed export taxes on aluminum, opening more markets up to the automotive-grade sheet and coil prices that automakers in the West have been experimenting with for a decade now. Prices of palladium, lead and even copper also notched strong LME growth filling strong demand from domestic and foreign automakers.

Consumer Sales Rising

In the US market, April new car sales rose by 5% from a year ago, to more than 1.463 million units as predicted in a J.D. Power and LMC Automotive‘s mid-month auto sales forecast update. April’s totals are anticipated to be the highest since April 2005.

SUVs and smaller “crossover utility vehicles” were the main leaders in the sales surge. While not all US automakers posted strong Q1 results, profits were generally up even if they were up lower than some analysts expected. General Motors‘ results were better than in the same period a year ago, when costs associated with safety recalls limited quarterly profit to $125 million.

Fiat Chrysler Automobiles reported a profit of $101.2 million (€92 million) d​uring the first quarter compared with a loss of $173 million (€190 million) during the same period last year.

What This Means for Automotive Buyers

Consumer demand for automobiles traditionally picks up in the summer months, so this could be the beginning of a big turnaround for our Automotive MMI®. Fundamentals continue to look strong as the index had better supply and demand numbers than other metals even when it was losing price ground. Stay tuned.

For actual prices of the automotive metals this month, read the full article by logging in or signing up to become a MM member.

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Raw Steels MMI® Holds Steady in its Low Trough With No Support

by Raul de Frutos May 6, 2015 Commodities

Steel prices remain at their lowest levels. Almost every industrial metal price rose in April as a weaker dollar gave a boost to commodity markets. However, steel prices remained quiet, hanging at record lows.

The monthly raw steels MMI® registered a value of 60 in May, on par with April's value.

Raw Materials Undercutting Scrap

Scrap prices are at their lowest levels and we don't really see anything that could give prices significant momentum on the upside, at least until a bigger supply response is seen.

Why Manufacturers Need to Ditch Purchase Price Variance

Unless we start seeing the dollar depreciate against other currencies, European scrap exports will keep gaining market share, leaving a supply excess for US steelmakers.

Cheaper to Produce

Moreover, although prices seem low, it's still cheaper to make steel still using iron ore than scrap. Pig iron or billet could substitute some scrap as primary raw material in which case, US exporters would sell more in the domestic market, causing US scrap prices to keep falling lower.

Meanwhile, steel imports keep arriving. Since US prices are no longer inflated compared to the rest of the world ,we would imagine steel imports to start slowing down through the remainder of the year. However, Chinese exports could actually increase due to the recent removal of export tariffs.

Either way, steel demand remains weak, particularly in oil and gas tubular markets while the market remains oversupplied. It doesn't seem likely that steel prices will rise significantly higher this year.

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Cheap Steel Imports and Weak Demand Sink ArcelorMittal in India, Too

by Sohrab Darabshaw May 6, 2015 Anti-Dumping
Cheap Steel Imports and Weak Demand Sink ArcelorMittal in India, Too

It may be the world’s largest steel producer, but Lakshmi Mittal-led ArcelorMittal saw a decline in its businesses in India in 2014 for two main reasons: weak demand and cheap imports.

Why Manufacturers Need to Ditch Purchase Price Variance

The firm’s recently released annual report said ArcelorMittal and its subsidiaries rang in sales of $225 million from India. Once upon a time, in fact in 2010, ArcelorMittal’s Indian operations had netted $873 million, so that will give readers some perspective of the depth to which sales have plummeted.

It would not be an exaggeration to state that almost all of India’s major steel companies have stories similar to that of ArcelorMittal. Even the government-owned Steel Authority of India Ltd. (SAIL), which had posted a net profit for the October-December quarter 8.6% higher than the same period last year, had a similar lament.

In its Q2 results statement, the company said the turnover was impacted due to “challenging market conditions” and high imports, among other reasons.

Rough SAILing

SAIL chairman C.S. Verma told the media here that the only way his company had circumvented these challenges was by bringing in initiatives to reduce energy consumption and optimize raw material utilization, as well as adopt state-of-the-art technologies.

It looks like these measures were not enough to save SAIL from Fitch Ratings. Fitch recently lowered the outlook for SAIL’s long-term foreign currency issuer default rating to negative. The crux of the matter lay in its commentary, where Fitch said continued weak steel demand growth in India, high steel imports or a further softening in global steel prices could derail SAIL’s efforts to modernize.

Same Story at Tata Steel

Another Indian steel behemoth, Tata Steel Ltd.’s Indian steel operations had a rough quarter again for almost the same reasons — sluggish demand, cheaper imports and higher raw material costs on account of mining stoppages. In the December quarter, Tata Steel’s consolidated sales declined over the preceding quarter by 6.1% on the back of a 3.1% decline in steel volume and weak steel price realizations. The only redeeming factor here was Tata’s European operations which turned in a substantial jump in profitability.

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Indian Steel Majors Look to Government for Help Against Cheap Imports

by Sohrab Darabshaw May 6, 2015 Anti-Dumping
Indian Steel Majors Look to Government for Help Against Cheap Imports

ArcelorMittal, Inc., as reported by The Economic Times, suffered weak Indian domestic demand for steel as the rupee depreciated by more than 30% since 2010, which also made imports difficult. ArcelorMittal had to pay more import duties to get ore into its CEO’s native country (7.5%) as opposed to imports from Free Trade Agreement (FTA) countries, who paid just 0.8%, adding to the company’s financial burden.

Pool 4 Tool’s Automotive SRM Summit

In February this year, Standard & Poors downgraded the company’s credit rating on lower than-expected profit though it maintained a stable outlook, saying ArcelorMittal would generate at least neutral cash flow and avoid meaningful debt increases over the next two years.

Weak Demand, Rising Imports

Most of India’s steel majors, such as ArcelorMittal, have, in recent times, been left trying to cope with weak demand and rising imports from China, Japan and South Korea.

Steel Authority of India Ltd.’s C.S. Verma, for example, has gone on record saying he is optimistic about a recovery in domestic demand in India, though that, to some extent, could be offset by a continued slump in export markets. Along with a few others, he feels steel prices, having plunged to a historic low, will only recover going forward.

A report released by Dun & Bradstreet earlier this week, reported sentiments generally in tune with the sentiments of executives such as Verma. While the outlook for mining and metals industry remained volatile globally, in India, though, the formation of a stable government had “reaffirmed corporate and consumer sentiment significantly,” the report said.

The latest Sector Outlook for Metals in India 2015 report by the agency said demand was likely to improve as fiscal policy was better geared toward an investment-led growth strategy. The government policy shift could provide an overall metal sector could benefit.

Government Help

India’s Modi government and the local governments are trying their best to improve the local situation. Indian Steel and Mines Minister Narendra Singh Tomar announced that the government had planned to set up four steel plants in the provinces of Jharkhand, Karnataka, Odisha and Chhattisgarh.

Of the four, the one in Chhattisgarh is touted as the most important. SAIL and the National Mineral Development Corporation plan to create an ultra-mega steel plant there. It’s a multibillion-dollar greenfield project that, when complete, will have a 3 million metric-ton-per-year capacity. It is planned that both the company and the Chhattisgarh government will sign agreements for the project when Prime Minister Narendra Modi visits Chhattisgarh on May 9.

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US Steel Producers Want Russian Steel Plate Deal Scrapped, EU to Impose GOES Tariffs

by Jeff Yoders May 6, 2015 Anti-Dumping
US Steel Producers Want Russian Steel Plate Deal Scrapped, EU to Impose GOES Tariffs

Steel imports into the US market are still a hot topic today in MetalCrawler. US producers want more cold war-era steel deals with Russia revoked and the EU is set to start tariffs on grain-oriented electrical steel (GOES) this month.

Russian Carbon Steel Plate

US steel producers on Tuesday demanded the Department of Commerce scrap a trade deal sparing Russian producers of carbon steel plate from import duties.

What the EPA’s Clean Power Plan Means For You

Nucor Corp., SSAB Enterprises LLC and ArcelorMittal USA said a flood of cheap cut-to-length (CTL) carbon steel plate was hurting the domestic industry.

The domestic producers believe Russian steelmakers have breached the terms of a suspension agreement, originally signed in 1997 and amended in 2003, that deferred anti-dumping duties on the products.

“The suspension agreement and its normal value pricing mechanism have failed to function as originally intended, and instead have facilitated Russian producers’ exports of large and increasing volumes of low-priced CTL plate to the US market,” the companies said in their submission to Commerce.

US steelmakers last year succeeded in removing a suspension agreement on Russian hot-rolled, flat-rolled, carbon quality steel, which had set a cap on imports and a minimum price.

If this second agreement is also revoked, Russia’s Severstal will face anti-dumping duties of 53.81% and other Russian producers and exporters will face duties of 185%, a source close to the petitioners told Reuters.

EU GOES Tariffs Begin This Month

The European Union will begin imposing anti-dumping duties on imports GOES from five countries, according to sources familiar with a European Commission proposal, sometime this month.

The Commission has set tariffs of between 21.6% for Russian imports and 35.9% for Japanese imports of GOES following a complaint lodged in June 2014 by the European steel producers association, Eurofer.

Duties will also cover imports from China (28.7%), the US (22%) and South Korea (22.8%).

The Commission will present its proposal to EU member states this week and by May 14 will put in place the duties, which are provisional pending the outcome of an investigation due to end in November. Normally such duties would then continue for five years.

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Steel Executives: Enforce Existing Trade Laws and US Steel Industry Will Prosper

by Jeff Yoders May 5, 2015 Anti-Dumping

The US steel industry is suffering because a barrage of imports has reached a record 34% of market share, steel executives said today at the American Iron and Steel Institute‘s press briefing in Chicago.

Nucor Corp. CEO John Ferriola said 4 million people whose livelihoods depend on the steel industry are at risk, but also that enforcing existing trade and anti-dumping laws consistently would make a wealth of difference for today’s producers.

What the EPA’s Clean Power Plan Means For You

“The first step is enforcing existing law as written,” he said. “Legally and consistently enforcing the laws on the books would help immensely… The American worker is still the most efficient worker in the world. We have relatively inexpensive energy, we have the raw material available, we have the best market in the world. When you look at those natural advantages, it makes no sense we should be operating at 60-70% capacity while the rest of the world is overproducing.”

Chinese Dumping

“While many nations continue to engage in unfair trade practices, China is of particular concern,” Baske said. “Last year, China exported 101 million metric tons. A surge of 60% over the previous year and that increase continued at record levels in the first quarter of this year. Some estimates are as high as 468 million mt. Steel demand in China declined last year and is expected to decline this year, too, according to the World Steel Association. China also manipulates its currency to give its products an unfair advantage.”

Baske also noted the business decisions US steelmakers have had to make due to declining prices due to the import surge and they are still in a difficult position due to what the glut has done to prices on the London Metal Exchange.

“On Sept. 3, almost eight months ago, hot-rolled ran $676 a ton. Now it’s $440 a ton,” he said. “In any industry, a 35% to 36% price reduction in that period of time would put pressure on the business. Fair trade will correct it.”

WTO Relief

The executives also noted that while bringing anti-dumping cases with the US International Trade Commission and the World Trade Organization has been somewhat successful, the process has not always worked in the favor of US producers. Even cases that were won, such as last year’s rebar case against Turkey, have not had high enough tariffs to discourage dumping. Gibson said the standard in a safeguard case is higher than in a trade case and the AISI, and the industry as a whole, continue to evaluate all options under the law.

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Low Oil Prices, Tepid Spending Hamstring Construction Metals Index

by Jeff Yoders May 5, 2015 Commodities

Outlays for US construction projects fell 0.6% in March to a seasonally adjusted annual rate of $967 billion, the US Commerce Department said last week. Commerce also revised February’s result to show almost no change.

Why Manufacturers Need to Ditch Purchase Price Variance

Despite the lower spending, the monthly Construction MMI® registered a value of 74 in May, on par with April's value. Flat is, apparently, the new up until construction starts and spending pick up some steam. The low prices have not yet incentivized developers enough, it would seem, to sign off on new projects or increase purchasing for anything but stockpiling, as credit is still hard to obtain and consumer demand for commercial and residential space remain tepid.

Energy Loans Called In

In fact, banks in the US are cutting credit lines to energy companies and forcing the firms to cough up more collateral to guard against fallout from the fall in oil prices.

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The US International Trade Commission upheld tariffs against both rebar and, more recently, oil country tubular goods (OCTG) from China, but the flood of imports has already done its damage when it comes to both traditional construction and the steel pipes used for oil and gas drilling. Supply is high and demand is simply not high enough to push prices upward.

It's a testament to the resilience of the US construction market that our MMI was even able to hold steady this month. For complete prices, read the complete story – log in or sign up for MetalMiner membership!

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Monthly Aluminum Price Index Rises as China Ends Export Taxes

by Raul de Frutos May 5, 2015 Metal Prices

MetalMiner's aluminum price index, the monthly Aluminum MMI®, registered a value of 90 in May, a significant increase of 2.3% from 88 in April.

Aluminum on the London Metal Exchange is back above $1,900 per metric ton, breaking short-term resistance to hit a four-month high.

China Ends Export Taxes

China erasing aluminum export taxes didn't seem to weigh down on prices; however, aluminum premiums took a beating when the news of China’s removal of export taxes came.

As my colleague Stuart Burns wrote in a recent article, the tax removal should reduce the domestic surplus of metal, supporting domestic prices and depressing prices in overseas markets. With current primary production counting for about 75% of total primary capacity, Chinese producers will have the ability to increase production without creating any shortages in China's domestic market.

Even outside China, production has been ramping up over the past six months. UC Rusal and Alcoa, Inc. have responded by closing older and less-efficient capacity, but even so, both they and other primary producers are investing in new capacity at the same time. Demand for aluminum remains robust, but the excess of supply is something that is clearly bugging aluminum producers.

Certainly, the supply outlook doesn't explain the recent price increase. However, the recent weakness in the dollar does. The dollar index is experiencing some turbulence for the first time in more than 9 months and that supported aluminum and most industrial metal prices in April.

Battery Research Continues

In other aluminum news this month we also had Stanford University  building an aluminum-ion battery prototype that offers various improvements over lithium-ion batteries. These aluminum-ion batteries will potentially make consumer electronics safer, charge faster and allow thinner or even flexible-form factors.

Get all of this month's exact prices in the full article.

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Never Mind Peak Oil, What About Uneconomic Oil?

by Stuart Burns May 5, 2015 Commodities
Never Mind Peak Oil, What About Uneconomic Oil?

There has been a lot of attention recently to the longer term viability of global fossil fuel reserves. Due to the fall in oil, natural gas and coal prices, the FT reports this week that all the oil majors have slipped into loss as a result of of the low oil and natural gas prices.

Why Manufacturers Need to Ditch Purchase Price Variance

That’s not the reason for the viability questions, though, that attention is due more as a result of future climate change legislation raising the cost of carbon-based fuels. Another article leads with comments made by Glencore Plc’s chief executive, Ivan Glasenberg, in the company’s recent sustainability report.

Glencore’s Bullish

Reacting to investor concerns (not just at Glencore but at all energy companies) he is quoted as saying “Although climate change issues are part of the political, societal and regulatory landscape, we do not believe that the global energy reality will economically support carbon measures that would prevent us from fully utilizing our fossil fuel reserves.”

In essence, what he is saying is a middle way will have to be found between reducing CO2 release and continuing to provide energy at an economically viable cost. Some investors have taken what they see as a moral stand such as the Church of England who have sold their investments in coal mines.

Others, like the heirs to the Rockefeller family and Stanford University are getting out more on economic grounds fearing assets will be “unburnable” if the world is to keep the rise in global warming below 2%. Some scientists have estimated that 80% of the world’s coal will never be mined if this objective is to be met, although it has to be said this does not account for the possibility that technology will ride to our rescue.

Humans do have a habit of coming up with technological developments to overcome challenges. Economically viable carbon sequestration for example could make coal viable even in a world demanding near-zero release of CO2 into the atmosphere. As the article points out, many energy companies appear to cling to the belief their assets will be in the economically recoverable 20% rather than the unrecoverable 80% – which clearly they cant all be.

Although Glencore has major exposure to the sector – they are the world’s largest seaborne coal shipper – they can viably argue theirs are among the lowest-cost and they are more likely than most to be the last coal man standing, and still turning a profit come what may.

Paris Match

Much will hinge on the outcome of this December’s climate change conference taking place in Paris, it is hoped the UNFCCC will achieve consensus among polluters on binding targets. Optimistically, by the end of the meeting, it is intended that all the nations of the world, including the biggest emitters of greenhouse gases, will be bound by a universal agreement on climate.

The chances of success in this respect were increased late last year when China and the USA reached a breakthrough agreement to reduce CO2 emissions. Notably the USA committed to cut carbon emissions 26% and 28% on 2005 levels by 2025 – a marked acceleration of its existing goal to reduce emissions by 17%.

China said it “intends” to start cutting carbon emissions in 2030 and make “best efforts” to peak emissions before 2030. It also agreed to increase the share of non-fossil fuels energy consumption to around 20% by 2030, a target it is already on its way to achieving as the world’s biggest investor in renewable energy.

As the world’s two biggest polluters, it was crucial that these two countries should be on board if the conference in Paris was to have any chance of success. It now looks more likely that binding targets will be agreed and as a consequence policy changes will develop over the next few years that could raise the cost of carbon and make existing fuels less viable.

Whether you agree with the climate change argument or not is irrelevant, the impact on you, your business and society will happen regardless. Fossil fuel resource companies are therefore looking at their position on the cost curve and, regardless of what is being said in public, you can bet it takes up board time.

Which almost as a postscript raises a question: if governments are serious about limiting a rise in global warming by reducing carbon dioxide emissions, surely they would be advised to spend some of the billions they will be raising in carbon taxes and fuel taxes on research into carbon sequestration. If we could economically use that 80%, which some are suggesting may never be burnable, it would keep the lights on for billions in the developed and developing world alike without costing us the planet.

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