Raw Steels MMI: U.S. market still has a steep curve ahead

The Raw Steels Monthly Metals Index (MMI) increased 1.5% for this month’s MMI reading. 
Raw Steels Chart July 2020 FNL

Chinese steel prices diverge from U.S. prices

The Chinese HRC price and the U.S. price diverged in June.
Chinese HRC prices continued to rise, reaching $559/mt (or CNY 3,910/mt) on July 10. Meanwhile, the U.S. HRC price has been falling over the past month and closed last week at $489/mt.
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In the case of CRC, the divergence is perhaps more significant. Chinese CRC prices have risen 5.56% over the one-month period to $599/mt (or CNY 4,190/mt), while its U.S. counterpart has fallen by 0.73% to $681/mt. HDG has followed a similar pattern.
Plate is the only form of steel that seems to be closing the price gap. Chinese prices traded flat for most of the year, closing last week at $604/mt (or CNY 4,230/mt) and U.S. prices recovered to $611/mt after dropping to $566/mt in mid-June.
These price divergences are due to the recovery China has seen after reactivating its economy and uncertainty the U.S. market is still experiencing as coronavirus cases in the country continue to rise.

U.S. steel demand

During the SMU Community Chat Webinar on July 1, Ryerson President and CEO Eddie Lehner stated in order for steel demand to recover, the country needs to rebuild the segments of the GDP that took a hit during the pandemic by continuing stimulating demand and investment confidence.
He pointed out that during the pandemic, construction and defense remained relatively strong, but aerospace, heavy machinery and heavy transportation equipment suffered. If demand comes back up, the worst of the price risk should be behind us, particularly for HRC, he added.
His comments coincide with the latest Institute for Supply Management (ISM) report, which revealed growth in the manufacturing sector in June.
Last month, the PMI jumped 9.5 points to 52.6, indicating the economy is expanding after months of contraction. The ISM reported 13 manufacturing industries reported growth in June; however, transportation equipment, primary metals, fabricated metal products and machinery reported contraction.
Lehner also mentioned consumers have changed some of their spending habits.
Automotive sales have seen some recovery due to safety concerns over public transportation and air travel which have brought sales projections from 9-10 million units for 2020 to 15 million or higher. Other products that benefit from social distancing are RVs, campers, fitness equipment and boats.

Steel production increases in the U.S.

The American Iron and Steel Institute reported steel production continues to increase, reaching a total of 1,289,000 tons and a capacity utilization of 57.5% for the week ending July 11. While this marked the fifth consecutive week of improvement, the current week’s production represents a 30.2% decrease from the same period in the previous year.
Year-to-date steel production (through July 11) totaled 41,927,000 tons compared to 52,014,000 during the same time frame last year.
This means the steel market will remain in oversupply for the time being.
However, industry leaders like Lehner highlighted the importance of investing in innovation in order to be competitive and recover from the economic crisis. Investment in the upgrade of manufacturing equipment and infrastructure would easily absorb new steelmaking capacity.

Rising Chinese imports of iron ore

In June, China imported 101.68 million metric tons of iron ore, a 17% jump from May and the highest monthly import level since October 2017, according to Reuters.
This is a clear indicator Chinese demand is well into recovery mode.
Zhao Yu, an analyst with Huatai Futures, suggested most of the imports came from Australia, that just closed its financial year and was eager to deliver as much ore as it could, but also because steel mills are preparing for the demand ramp up after the Chinese rainy season (which usually means a construction slowdown).
Australia shipped a record 46.2 million metric tons to China in June, while China shipped out 3.7 million metric tons of steel production during the same period.
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Actual metals prices and trends

The Chinese slab price rose 1.8% month over month to $522.10/mt as of July 1. Chinese billet rose 11.2% to $475.41/mt.
Chinese coking coal fell 0.6% to $263.88/mt.
U.S. three-month HRC fell 1.7% to $526/st. U.S. shredded scrap steel fell 3.4% to $259/st.

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