Raw Steels MMI: Steel prices decline; more tariff negotiations

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The Raw Steels Monthly Metals Index (MMI) dropped by 7.7% month over month to 108, as steel prices fell in November.

December 2021 Raw Steels MMI

The U.S. steel market continues to show weakness. As HRC prices endure week-over week-declines, mill lead times have narrowed to historically average ranges.

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UK, Japan, Korea seek removal of Section 232 tariffs

Following an agreement reached with the E.U., the U.K., Japan and South Korea have all requested to renegotiate the Section 232 tariffs with the U.S.

The Trump administration imposed the tariffs in 2018, levying duties of 25% and 10% on steel and aluminum imports, respectively, from most countries. In late October, the parties announced that the U.S. and E.U. had renegotiated the import restrictions in favor of a tariff-rate quota system. Under the new arrangement, the U.S. would permit a limited volume of the metals produced in the E.U. into the U.S. with no Section 232 duty applied. For steel products, the quota would total 3.3 million metric tons, effective Jan. 1, 2022.

Japan, in particular, had requested an exemption from the tariffs since their onset, instead in favor of a trade agreement in line with WTO rules. Alongside the establishment of Japan-U.S. Commercial and Industrial Partnership (JUCIP), the U.S. said in mid-November that it would open discussions with Japan about a possible ease to the current duties. This announcement prompted South Korea to officially request negotiations, as both Japan and the E.U. are major competitors to the Korean steel industry.

Meanwhile, in a joint statement released Dec. 7, the U.S. and Britain indicated they will open talks regarding the tariffs. British trade minister Anne-Marie Trevelyan has invited the U.S. Commerce Secretary, Gina Raimondo, to visit the U.K. in January, as pressure grows to raise Britain’s retaliatory tariffs on U.S. products.

Chinese daily crude output lowest since 2017

Chinese daily steel production hit a four-year low in October.

Production collapsed 6.1% to only 2.3 million tons, according to World Steel Association data. Total monthly output dropped for the fifth consecutive month to 71.58 million tons, which reflects a 23.3% year-over-year decline.

China, the world’s largest steel producer, has faced many obstacles throughout the year. Beijing has imposed output cuts to meet emissions targets and mitigate energy shortages. Mills will face continued limits until March 15 of next year as part of a pollution campaign in preparation for the upcoming Winter Olympics. According to Reuters, “from Jan. 1 to March 15 next year, mills are to curtail output by no less than 30% of steel production versus 2021.”

According to customs data, November steel exports from China also fell in October. The drop reflects a 0.8% year-over-year decline and a 3% month-over-month decline. Chinese steel prices have fallen significantly in recent months. Current Chinese HRC prices are down almost 10% from the start of November.

China’s property decline, Evergrande default

After months of narrowly making debt repayments, Evergrande officially defaulted. Evergrande, which currently holds upwards of $300 billion in liabilities, failed to pay $82.5 million worth of coupon repayments within the 30-day grace period. The payments were originally due in November. Meanwhile, property developer Kaisa is also in default upon a failure to pay a $400 million dollar bond that was due Dec. 7.

Alongside tight home loan quotas and property tax concerns, the effects of China’s indebted developers have begun to reverberate through the entire property sector. Average home prices in 2020 showed a 4.9% gain, Reuters reported. In 2021, however, average prices are expected to rise only 2.6%. The outlook appears even more bleak going forward, as average prices are expected to drop 1.0% in the first half of 2022 alone. Meanwhile, property sales and property investments are also expected to see a downturn in the coming year. Forecasts for the first half of 2022 indicate a 16% decline in property sales as compared to a 27.7% rise during the same period of 2021, Reuters reported. Property investment is expected to see a 3% fall during that period as compared to a 15% in the first half of 2021, the news agency added.

As China’s property sector accounts for roughly 25% of its steel and copper demand, such declines will undoubtedly have larger ramifications for global metal markets. SHFE copper and aluminum prices have retraced to summer trading ranges amid the property sector crisis. Chinese steel prices, meanwhile, have deteriorated to ranges not seen since March.

Actual metals prices and trends

Chinese slab prices fell 8.65% month over month to $785 per metric ton as of Dec. 1. Meanwhile, the Chinese billet price fell 6.63% to $672 per metric ton.

Chinese coking coal prices dropped by 14.1% from $486 to $417 per metric ton.

U.S. three-month HRC futures declined 14.69% from $1,430 to $1,220 per short ton. While the spot price declined by 10.45% from $1,780 to $1,594 per short ton. U.S. shredded scrap steel prices held firm at $470 per short ton.

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