This morning in metals news, Colombia could look to make itself a factor in the copper market, Aus Tin announced that it had begun the first phase of its Taronga tin project and Rio Tinto announced its Q2 2019 production results.
“We saw a challenging operational performance across our portfolio in the first half, while also investing in future growth at Richards Bay Minerals and Resolution,” Rio Tinto CEO J-S Jacques said in a release. “Whilst we experienced operational and weather issues at our iron ore operations in Australia, pricing and market demand has remained robust.”
June housing starts reached a seasonally adjusted annual rate of 1,253,000, down from the revised May estimate of 1,265,000.
However, June starts increased 6.2% on a year-over-year basis, up from June 2018’s rate of 1,180,000.
Single-family starts hit a rate of 847,000, up 3.5% from the May’s 818,000.
Meanwhile, the rate for units in buildings with five units or more reached 396,000.
Privately owned housing units authorized by building permits reached a seasonally adjusted annual rate of 1,220,000 in June, marking a decrease of 6.1% from May’s 1,299,000. June 2019 building permits also declined 6.6% on a year-over-year basis from June 2018’s rate of 1,306,000.
Permits for single-family homes jumped 0.4% from the previous month, rising to a rate of 813,000.
Permits for units in buildings with five units or more reached 360,000, according to the report.
Privately owned housing completions reached an annual rate of 1,161,000 for June, according to the Census and HUD report.
The June completions figure marked a 4.8% drop from the May total and a 3.7% drop on a year-over-year basis.
In addition, single-family housing completions, at 870,000 in June, fell 1.8% from the previous month. The June rate for buildings with five units reached 283,000.
“Rates of 4% and, in some cases even lower, create extremely attractive conditions for consumers,” Yun said in an NAR release. “Buyers, for good reason, are anxious to purchase and lock in at these rates.”
MetalMiner Executive Editor Lisa Reisman argues the move sends the wrong message and could be harmful for ArcelorMittal’s otherwise strong brand.
“Research has shown that establishing strong win-win supply arrangements always yields better outcomes relative to product innovation, quality, reliability, etc.,” Reisman said. “It’s an absolute mistake to wield a hammer as a punishment for margin erosion due to falling prices.”
Reisman said the company should have hedged some of its sales with exchange-traded products (like the CME HRC contract). In addition, with prices likely having hit their bottom and a cyclical uptick being very possible, the request for lower prices could be unsuitable to near-term market conditions.
What happens from here remains to be seen, but Reisman argued this move could have repercussions, including suppliers questioning the move and potentially reconsidering their allocations to ArcelorMittal in future tight markets.
Those in the steel sector will have a chance to learn about all of the trends impacting the steel industry during the upcoming SMU Steel Summit, scheduled for Aug. 26-28 at the Georgia International Convention Center in Atlanta.
The 2018 iteration of the summit attracted 912 attendees from 410 companies, 95% of whom were “actively associated with the flat rolled steel industry in North America and around the world,” according to the event’s website.
In addition to analysis of steel prices trends, the summit also offers attendees the opportunity to network and gain insights into trends in other sectors, including banking, international trade and regulation, and the automotive, construction and energy markets (among other subjects).
Ahead of the event, we chatted with CRU’s principal analyst for steel, Josh Spoores, who is one of 28 scheduled speakers during the multiday summit.
Of course, one of the biggest developments in steel over the last year or so has been the U.S. Section 232 tariff on imported steel, which went into effect March 23, 2018.
Canada, Mexico and the E.U. initially won temporary exemptions from the tariffs, but those eventually were allowed to expire June 1, 2018. Recently, however, the U.S. rescinded the tariff with respect to Canada and Mexico amid ongoing attempts to pass the United States-Mexico-Canada Agreement (USMCA), the free trade agreement meant as the successor to the North American Free Trade Agreement (NAFTA).
Spoores said the Section 232 tariffs have been successful at boosting U.S. steel production (according to the American Iron and Steel Institute, the domestic steel sector operated at a capacity utilization rate of 81.1% for the year through July 13, compared with 77.0% for the same period in 2018).
But are the tariffs here to stay?
“It’s a hard thing to forecast how these come out,” he said. “Our best reference to these is the Section 201 tariff in 2002, and those lasted nearly two years. Our expectation is that the 232 is not a permanent fix. It’s going to weaken at some point, but there’s a very good possibility that remnants of it could last for a very long time.”
U.S. steel prices have been trending downward since last summer; in that time, the sector has also seen a decline in lead times (as noted in MetalMiner’s most recent Monthly Metal Buying Outlook).
“They’ve gotten low,” Spoores said. “Some producers expanded. I think volatility is going to remain here — I think we’re looking at some mini cycles in terms of steel. We saw some of those mini cycles coming out of the global financial crisis.”
In terms of steel price cyclicality, he said the elements for a strong year were there even before the imposition of the Section 232 tariffs in March.
“We did see that 2018 was going to be a very strong year anyway before the tariffs,” Spoores said. “Tariffs came out and they really supercharged that. The end result was really a longer-term price cycle that moved up.
“We’ve seen the price cycle move down now for about a year. I think where we are right now is maybe back toward that mini cycle where inventories haven’t fallen too far. Imports are down, U.S. prices are down — they’re lower than China right now, domestically.”
However, demand is not high enough to spur a new, longer-term cycle, Spoores added.
“Without new demand coming out and rising, I think we’re going to be stuck where lead times are in that mini cycle where they expand a little bit and they start to contract,” he said.
Looking ahead, slowing economic growth around the world and trade uncertainty are casting a shadow on commerce, generally.
The same is certainly the case for steel markets, in both the U.S. and around the world.
“We’re seeing industrial growth in the U.S. fall dramatically,” Spoores said. “In North America it was 4% last year, and this year we’ve dropped our forecast down to just 0.8%. That growth is slowing quite a bit and we’re seeing a lot of that reflected in PMI data. We’re pretty much neutral on some key components right now in the U.S. Globally, the PMI data for Europe and Asia — it looks pretty bad.
This morning in metals news, the United States Trade Representative USTR once again dished up criticism of the World Trade Organization’s (WTO) Appellate Court, China aims to mitigate the impact of rising iron ore prices on its steelmakers and India’s steel exports have plunged over the last year.
The USTR took aim Tuesday at a WTO Appellate Court ruling on China’s countervailable subsidies.
“Today’s appellate report recognizes that the United States has proved that China uses State-Owned Enterprises (SOEs) to subsidize and distort its economy,” the USTR said in a prepared statement. “Nonetheless, the majority in the report says that the United States must use distorted Chinese prices to measure subsidies, unless the U.S. provides even more analysis than the hundreds of pages in these investigations. This conclusion ignores the findings of the World Bank, OECD working papers, economic surveys, and other objective evidence, all cited by the United States.”
The Trump administration has often criticized the WTO; the USTR said the recent report “also illustrates the concerns the United States has been raising about the Appellate Body’s functioning.”
“The United States is determined to take all necessary steps to ensure a level playing field so that China and its SOEs stop injuring U.S. workers and businesses,” the USTR concluded.
China’s Steelmakers and Rising Iron Ore Prices
Steelmakers in China have been feeling the pressure this year amid a surge in iron ore prices.
The Chinese government hopes it can do something to reverse the upward trend in the steelmaking material’s cost.
This morning in metals news, the U.S. steel sector continues to outproduce 2018 levels, copper prices are around two-week highs and President Donald Trump took to Twitter to tout the impact of the U.S.’s tariffs on China’s economy.
“China’s 2nd Quarter growth is the slowest it has been in more than 27 years,” he said. “The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries. Thousands of companies are leaving. This is why China wants to make a deal […] with the U.S., and wishes it had not broken the original deal in the first place. In the meantime, we are receiving Billions of Dollars in Tariffs from China, with possibly much more to come. These Tariffs are paid for by China devaluing & pumping, not by the U.S. taxpayer!”
In May, the Trump upped the tariff rate on $200 billion in Chinese goods from 10% to 25%. The president has also threatened to impose tariffs on an additional $325 billion in Chinese goods, effectively subjecting nearly all U.S. imports from China to tariffs.
On Monday, July 15, the president signed a proclamation hailing this “Made in America Week,” and also signed an executive order aimed at “maximizing use of American-made goods, products, and materials.”
The order strengthens the requirements under the Buy American Act — originally passed in 1954 during the Eisenhower administration — for federal agencies to buy American-made goods.
According to White House trade adviser Peter Navarro, the order would increase the threshold for domestic content of iron and steel from 50% to 95%, Reuters reported.
The order directs the Federal Acquisition Regulatory Council to, within 180 days, consider proposing an amendment to the Federal Acquisition Regulation (FAR) that would dictate materials be considered of “foreign origin” if “the cost of foreign iron and steel used in such iron and steel end products constitutes 5 percent or more of the cost of all the products used in such iron and steel end products.”
For all other products, the threshold for foreign origin would be applied if “the cost of the foreign products used in such end products constitutes 45 percent or more of the cost of all the products used in such end products.”
“The philosophy of my administration is simple. If we can build it, grow it or make it in the United States, we will,” Trump was quoted as saying by the Associated Press.
Thomas J. Gibson, president and CEO of the American Iron and Steel Institute (AISI), praised the move.
“This announcement is another positive step in ensuring the fullest possible implementation and enforcement of existing domestic procurement laws and ensuring the steel industry remains competitive,” he said in a prepared statement. “Strong domestic procurement preferences for federally funded infrastructure projects are vital to the health of the domestic steel industry, and have helped create manufacturing jobs and build American infrastructure. We applaud President Trump for once again affirming his commitment to the steel industry that built, and continues to build, our nation.”
In an effort to boost the domestic steel sector, the Trump administration invoked Section 232 of the Trade Expansion Act of 1962 last year to impose tariffs of 25% and 10% on steel and aluminum, respectively. Since then, the U.S. steel sector’s capacity utilization rate has trended upward.
According to AISI, the U.S. steel sector’s capacity utilization rate hit 81.1% for the year through July 13, up from 77.0% for the same period in 2018. Production for the aforementioned year-to-date period hit 52.3 million tons, up 5.2% on a year-over-year basis.
The zinc market was in deficit by 123,000 tons over the first five months of the year, according to the ILZSG.
January-May zinc mine production hit 5.27 million tons, up 1.4% from 5.20 million tons during the equivalent five-month period in 2018. According to the report, the increase was paced by a “substantial” increase in Australian zinc mine production, in addition to increases seen in Namibia, South Africa and Sweden.
Meanwhile, zinc mine output fell in China, India, Peru, Turkey and the United States.
Mine production in May hit 1.12 million tons, down from 1.13 million tons the previous month.
Refined zinc metal production reached 5.39 million tons, down from 5.45 million tons the previous year. May production reached 1.12 million tons, up from 1.11 million tons in April. Refined production increases in Mexico and Peru were canceled out by declines in Canada, China, India and Russia.
Zinc usage fell 0.6%, paced by declines in China and the E.U. Usage increased, however, in Brazil, India, the Republic of Korea, South Africa and the United States.
Lead Deficit Hits 42 KT
Meanwhile, the lead market deficit for the first five months of the year reached 42,000 tons.
Lead mine production for the first five months of the year reached 1.94 million tons, up from 1.91 million tons for the same period in 2018. Canada, India, Mexico, Peru and Sweden saw increases, while production in Australia and China fell.
Lead metal production increased 2.6%, up to 4.83 million tons, up from 4.71 million tons.
Lead usage surged 2.8% during the five-month period to 4.88 million tons, powered by increases in China, India and Taiwan.
This morning in metals news, President Donald Trump is expected to sign an executive order calling for heightened steel content thresholds for federal projects, Japanese firm Nippon Steel is planning to offload $1.9 billion in assets in order to purchase India’s Essar Steel and Chinese iron ore prices are getting a boost from a positive demand outlook.
President Donald Trump will sign an executive order Monday calling for higher steel content thresholds for federal projects, according to White House trade adviser Peter Navarro in an opinion piece published by Fox News.
According to Navarro, the order will call for the raising of the domestic steel content threshold for federal projects from 50% to 95%.