Our raw steels MMI took a much-deserved breath from its long fall in December, rising for the first time since August 2014. The index rose 2% to 47 from 46.
While it’s certainly progress after a year of falling prices, it’s still important to temper your expectations when it comes to steel.
In December, we had big anti-dumping news. The Department of Commerce announced its preliminary determinations in the investigations of imports of corrosion-resistant steel products from China, India, Italy, and Korea, and Taiwan.
China received a preliminary dumping margin of 255.8%. Which could considerably reduce the amount of corrosion-resistant steel imported from China. The size of the duty will likely make these exports unattractive to Chinese producers. Meanwhile, the imports from South Korea, India, Italy and Taiwan all were levied less than 7% duties, which doesn’t seem as if it will be enough to stop these countries from shipping metric tons of automotive and appliance steel to the US going forward.
Finally, Taiwan escaped import duties with preliminary dumping margins of 0%. The effect in corrosion-resistant steels like hot-dipped galvanized is yet unknown and, therefore, something worth monitoring.
Micro Aggressions, Macro Problems
But imports are not the only problem that US mills are facing. Macro factors keep putting pressure on steel prices. In December, oil prices fell to fresh lows, trading near $35 per barrel. Falling oil prices bring down metal production costs and also adds to the bearish sentiment in commodity markets.
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Low oil prices have led to an energy sector collapse and domestic steel demand from this sector has fallen significantly. This helps explain the decline in US steel production and capacity utilization. Domestic mills have idled the most capacity since the financial crisis, operating at just 61% in December. Another important consequence of the energy collapse is that inventories held by steel companies are taking a long time to deplete in the face of falling demand, exacerbating the slump in consumption.
Months on hand (MOH) inventories increased to three in December because of the slow shipping rate. Still, many mills are optimistic that they will finish restocking this quarter.
What This Means For Metal Buyers
Although steel prices took a break from their year-long fall in December, there are still many factors weighing down prices. It seems too early to bet on a recovery in prices. For corrosion-resistant steel buyers, the effects of the new import duties is certainly something to watch.