Our Raw Steel MMI rose 2 points or by 4%. Wait, what? Didn’t steel prices fall in September?
Yes, they did. Significantly, domestically, but the index collects and weights 13 global steel and raw material price points. So, while prices in the U.S. fell, international prices held well and coking coal prices saw a spectacular increase.
The price of Chinese coking coal, a vital ingredient in the steelmaking process, more than doubled in September. Behind the surge are disruptions in Australia, a leading supplier to the export market, and production curbs in China caused by government restrictions.
Meanwhile, steel prices in China were flat following the price divergence we already witnessed last month, see falling US prices and rising/flat international prices. The rally in U.S. steel prices, which was driven mainly by trade cases, is now fading.
Global steel production continues to increase. In August, production in China rose 3% year-on-year. The country still has a lot work to do if it wants to meet its target of reducing capacity. Meanwhile, U.S. steel production fell in August.
Taxing Chinese Supply Creates Opportunity Elsewhere
Despite a recovery in prices during the first half, U.S. producers haven’t increased output to create an artificial domestic shortage. However, there is no global shortage and falling domestic output is only pushing steel buyers to source their needs from overseas.
The clearest example is cold-rolled coil (CRC). Prior to the recent trade cases, China accounted for more than half of U.S. CRC imports. Imports from China were effectively shut down thanks to a super-high dumping/countervailing duty margin of 265%. However, it seems that imports now are coming from other sources. In August, cold-rolled coil imports rose almost 11% from last year, recording the highest levels in 13 months.
Tariffs Can’t Stop International Prices From Falling
In a bid to protect their turf from the new wave of steel imports, U.S. steel companies are filing a case against transshipments of Chinese steel products from Vietnam.
U.S. steelmakers will likely find it difficult to prove those allegations and, even if they do, those same imports could come from other countries. Trade cases can provide short-term breathers in the current import environment, but — in the medium- to long-term — U.S. steel companies will have to become more competitive to win the market back from imports. Although U.S. prices have fallen recently, the spread between U.S. and international prices is still lucrative for domestic buyers to look overseas for their material.
The key now is not only to watch domestic prices, but also international prices. Eventually, the current decline in domestic prices will find support if the gap between domestic and international prices narrows enough. On the other hand, if international prices start to slide, too, it might be difficult for U.S. steel prices to find a floor.
Actual Steel Prices
The Chinese slab price fell 5% to 378 CNY per mt. US shredded scrap fell 8% to finish the month at $219 a mt. Chinese HRC fell 3% to 414 CNY per mt from 435 CNY a month ago. The U.S. HRC futures contract declined 8% to $490 per mt. China coking coal rose 315%.