Author Archives: Maria Rosa Gobitz

hot rolled steel

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The Raw Steels Monthly Metals Index (MMI) increased 1.5% for this month’s MMI value. 

August 2020 Raw Steels MMI chart

Learn when you should use a steel scrap cap collar contract versus a finished price index.

Chinese demand on the rise

In the past few months, Chinese HRC and CRC prices have increased over 20%. Meanwhile, their U.S. counterparts have followed the opposite trend. This is due to weaker U.S. demand and stronger-than-expected Chinese demand.

China produced a record amount of crude steel in July as the government boosted infrastructure spending. In addition, the manufacturing sector rebounded as the government lifted lockdown restrictions.

China produced 93.36 million tons of crude steel in July, up 1.9% higher from June. The July total marked a 9.1% increase from July 2019, according to the National Bureau of Statistics of China.

Most of China’s steel production comes from integrated mills. As a result, iron ore prices continue to increase as China’s demand remains strong.

China continued to increase its iron ore imports. In the first half of 2020, China imported 546.91 million tons of iron ore, or a 9.6% year-over-year increase.

Typically, the U.S. market lags the Chinese market by a month or two. Market watchers should monitor if the U.S. steel market to see if it follows a similar price trend to China in the following months.

U.S. steel market

Another factor contributing to the slow recovery of U.S. steel prices may come down to  the rapid recovery of mills’ capability utilization rate.

According to the American Iron and Steel Institute (AISI), the U.S. steel sector’s capacity utilization rate rose to 60.4% for the week ending Aug. 8.

While the rate is lower than the same period in 2019, when it reached 79.1%, the rate has increased steadily over the past few weeks despite low steel demand.

Similarly, steel production increased to 1.35 million tons — up from the previous week but still 26.5% below the same period in 2019.

Nonetheless, the rise of capability utilization rate at mills could mean quite the opposite for scrap.

As U.S. steel production and the capability utilization rate continues to increase, so could demand for scrap. Consequently, scrap prices might increase.

Steel in the rest of the world

The European Steel Association (EUROFER) reported steel consumption in the European Union slid by 12% year over year in the first quarter of 2020.

Furthermore, EUROFER anticipated consumption might dip lower in the second quarter due to lockdown measures.

The association expects the construction industry to perform better than other sectors. However, that still means construction output is forecast to decline by 5.3% in 2020. However, EUROFER forecast a 4% increase in 2021.

Meanwhile, Junichi Akagi, general manager of JFE Steel in Japan, said steel demand should pick up throughout the third and fourth quarters. However, Akagi does not expect demand to recover to pre-pandemic levels until March 2021.

The Japan Iron and Steel Federation reported orders of steel from automakers, which represent approximately 20% of steel demand, declined by 58% during the second quarter of 2020.

This makes it clear that these large steel-producing countries do not expect to recover their steel demand until early 2021.

Actual metals prices and trends

The Chinese slab price rose 3.2% month over month to $538.87/mt as of Aug. 1. Meanwhile, the Chinese billet price rose 2.5% to $487.27/mt.

Chinese coking coal increased 9.7% to $289.35/mt.

U.S. three-month HRC fell 1.5% to $518/st. U.S. shredded scrap steel fell 8.1% to $238/st.

See why technical analysis is a superior forecasting methodology over fundamental analysis and why it matters for your steel buy. 

stainless steel

Maksym Yemelyanov/Adobe Stock

The Stainless Monthly Metals Index (MMI) increased by 4.4% for this month’s MMI value.

August 2020 Stainless MMI chart

Surcharges increase for a third month

While stainless demand continues to remain in line with U.S. flat-rolled producer supply, alloy surcharges are rising for the third month in a row.

Why? The surcharge increases are again due to an increase in the nickel price.

Over the past month, the LME nickel price increased over 6% to $14,433/mt as of Aug. 6.

Similarly, the Chinese nickel price increased to $16,515/mt (or CNY 113,850/mt).

Are rising surcharges causing concern? Make sure your base prices are held fixed. See how service centers negotiate with you.

Nickel price jumps over supply fears

The Mines and Geosciences Bureau reported that Philippines nickel exports declined by 28% year on year to 102,310 tons during the first half of the year.

The export decline made waves on the LME and SHFE, where the nickel price increased.

Top producers reassured the market that no further disruptions are anticipated for the remainder of the year, despite coronavirus cases having increased since the first half of the year.

Moreover, the largest exporter of high-grade nickel, SR Languyan Mining Corp, will likely deplete by the end of this year, according to the Ministry of Environment and Natural Resources of the region. This would mean the Philippines may fail to keep up with their current exports to China, further supporting the nickel price.

Demand in China has remained high. Macquarie analyst Jim Lennon estimated Chinese mills produced 2.88 million tons of stainless steel in July, or a 4.8% year-over-year increase. High-nickel containing 300-series grades of stainless grew 17.5% year over year to 1.46 million tons in July (an all-time high).

However, Lennon still expects a nickel ore surplus of around 100,000 tons for 2020.

Some demand recovery in the U.S.

The Association For Manufacturing Technology (AMT) reported U.S. manufacturing technology orders in June increased to $346.7 million, 56% more than the previous month. June orders, however, increased just 6% from June 2019.

Orders from January to June totaled $1.69 billion in 2020, down 26% year over year.

According to the AMT, manufacturing technology encompasses metal cutting, forming and fabricating. One of the industries that saw the largest order increase was the automotive sector, which almost doubled orders from June 2019. Meanwhile, agricultural equipment manufacturers nearly quadrupled and manufacturers of HVAC and commercial refrigeration equipment more than tripled orders for manufacturing technology.

The AMT expected a similar amount of orders for the month of July as demand bounces back.

Actual metals prices and trends

The Allegheny Ludlum 316 stainless surcharge declined 1.6% month over month to $0.79/pound. The 304 surcharge rose 0.8% to $0.61/pound.

LME primary three-month nickel rose 7.5% to $13,806/mt.

Chinese 316 and 304 cold-rolled coil rose to $2,923.63/mt and $2,106.74/mt, respectively.

Chinese primary nickel rose 8.0% to $15,592.71/mt. Indian primary nickel rose 7.4% to $13.85/kilogram.

FeCr lumps increased 1.3% to $1,490.48/mt.

Make sure you are following the five best practices of sourcing stainless steel

Aluminum production

Alexander Chudaev/Adobe Stock

The Aluminum Monthly Metals Index (MMI) increased by 5% for this month’s MMI value.

August 2020 Aluminum MMI chart

SHFE prices stronger than LME prices

LME and SHFE aluminum prices continued to trade up.

The LME price reached $1,783/mt on Aug. 10, a six-month high. Meanwhile, the SHFE price reached CNY 14,820/mt on Aug. 3, a year-to-date high.

However, the SHFE aluminum price has continued to diverge from LME aluminum prices since April, with the SHFE being higher than the LME.

As a consequence, LME warehouse stocks have remained above 1.6 million tons since mid-June. These are the highest levels seen since May 2017.

The elevated stock level is due to a combination of low raw material prices and the high cost of shutting down primary smelters. This is in line with the estimated market surplus for January to May of 908,000 tons, as reported by the World Bureau of Metal Statistics.

Record imports amid strong Chinese aluminum demand

The price arbitrage between the LME and the SHFE, along with the strong Chinese demand, have incentivized traders to purchase aluminum at the discounted price overseas.

As a consequence, China imported 816,592 metric tons of aluminum, up 219.2% year on year for the first half of the 2020. In June alone, China imported 490% more than a year ago, reaching an 11-year high.

Reuters reported that Antaike, the China Nonferrous Metal Industry Association’s research department, revised its 2020 aluminum consumption by 1.7%. Antaike’s new estimate is 36 million tons, compared to the previous estimate of 36.6 million tons.

Since China’s demand for aluminum does not seem to be declining, it is set to be a net importer of primary aluminum this year, closing at 400,000 tons.

Last year, China was a net exporter at 1,000 tons.

Trump reinstates tariff on some Canadian aluminum

On Aug. 6, President Donald Trump reimposed a 10% tariff on some Canadian aluminum products to protect U.S. industry from excessive imports. The tariff applies to raw, unalloyed aluminum produced at smelters. The tariffs do not apply to downstream aluminum products.

However, data released Aug. 5 by the U.S. Census Bureau showed overall primary aluminum imports from the U.S. to Canada declined about 2.6% from May to June. In short, that means imports are below levels seen as recently as 2017.

As a result, the U.S. market might see an increase in the MW premium, which will feed through to higher semi-finished prices. The MW aluminum premium is currently $0.12/lb.

After the tariff announcement, Canada pledged to impose retaliatory tariffs on C$3.6 billion (U.S. $2.7 billion) worth of U.S. aluminum products. During a news conference, Deputy Prime Minister Chrystia Freeland said the countermeasures would be put in place by Sept. 16 to allow for consultations with industry.

Are rising MW premiums causing concern? See how service centers take advantage of that. 

Actual metals prices and trends

The Chinese aluminum scrap price rose 7.6% month over month to $1,963.42/mt as of Aug. 1. LME primary three-month aluminum rose 6.2% to $1,722/mt.

Korean commercial 1050 aluminum sheet fell 3.7% to $2.79/kg, while its European equivalent rose 5.2% to $2,449.43/mt.

Chinese aluminum billet rose 6.5% to $2,144/mt. The price of Chinese aluminum bar rose 6.3% to $2,240.02/mt.

Chinese primary cash aluminum rose 4.6% to $2,132.53/mt. Indian primary cash aluminum increased 2.7% to $1.88/kg.

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The Copper Monthly Metals Index (MMI) increased 5.4% for this month’s MMI reading.

August 2020 Copper MMI chart

LME copper prices increased through the first half of July and have traded sideways since mid-July.

However, the price remains well above $6,000/mt. Chinese demand remains strong and market sentiment remains positive.

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Will prices temporarily slow down?

LME copper prices continued to rise throughout July. The price reached a 14-month high by surpassing the $6,400/mt level.

SHFE prices followed a similar trend.

However, the price increase seems to have slowed. LME and SHFE prices have trended sideways for the last three weeks.

Copper inventories in LME warehouses decreased nearly 60% to 128,125 tons in July, reaching the same low levels seen in mid-January.

On the other hand, SHFE stocks had the exact opposite trend. SHFE stocks increased by 60% to 159,513 tons by the end of the month. This could be due to the fact that even though demand in China remains strong, it tends to have a seasonally weak demand period from June to August. During that period, in which construction slows due to the hot and rainy summer (as MetalMiner reported last month).

Another factor contributing to the price slowdown is that despite positive sentiment toward economic recovery in the next few months, the rest of the world needs to show more signs of demand improvement.

Moreover, a week ago, the Brent crude market appeared to have moved back into contango.

This could signal the demand recovery expected for the second half of 2020 could appear too optimistic, which may bring some negative sentiment to copper prices.

China sets a copper imports record

Another explanation as to why LME stocks remain low while SHFE stocks have surged involves China’s record copper imports in July.

Reuters reported China imported 762,211 tons of raw copper and copper products in July, a 16.1% increase from the previous month.

High demand from the Chinese manufacturing industry and durable goods sectors drives the high import levels. However, the main driver may have been the arbitrage between the LME and the SHFE prices.

Chilean copper supply takes a hit

The National Statistics Institute (INE) of Chile reported at the end of July that copper production had declined 0.6% to 472,172 metric tons in June.

July marked the first month since the beginning of the pandemic that copper production in Chile saw little impact due to the coronavirus. Until now, Chile served as the only main producer that did not implement temporary shutdowns. However, throughout June, producers had to scale down as some reported coronavirus-related fatalities.

Despite Chile being one of the hardest-hit countries in South America, coronavirus cases seemed to have peaked in mid-June. As such, production could ramp up later this year.

Actual copper prices and trends

Copper prices continue to rise, with the Copper MMI value increasing 5.4% over last month.

Japan’s primary cash price increased 7.0% month over month to $6,640/mt.

U.S. producer copper grades 110 and 122 increased by 4%, resulting in a $0.14/pound increase for both to $3.66/pound. U.S. producer copper grade 102 increased by 3.7% to $3.88/pound, compared to $3.74/pound last month.

Indian copper cash prices increased by 8.3% to $6.68 per kilogram.

Korean copper strip increased by 0.4% to $7.42 per kilogram.

The Chinese copper primary cash price increased by 4.3% to $7,283/mt.

Does your company have a copper buying strategy based on current copper price trends?

stainless steel

Maksym Yemelyanov/Adobe Stock

The Stainless Monthly Metals Index (MMI) increased by 3% this month after holding flat for two consecutive months.

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

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Alexander Chudaev/Adobe Stock

The Aluminum Monthly Metals Index (MMI) increased by nearly 6.7% for this month’s MMI reading.

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The Copper Monthly Metals Index (MMI) increased by 8.8% for this month’s MMI reading as copper prices continue to increase globally.

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leszekglasner/Adobe Stock

The Stainless Monthly Metals Index (MMI) held flat this month.

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The Raw Steels Monthly Metals Index (MMI) increased by nearly 4.7% this month.

High expectations for steel demand recovery

In late March, steel demand was hit hard by the decline in automotive sales amid the COVID-19 pandemic.

As automakers began to restart their operations in early May, steel prices have seen some slight improvement, as we reported last month.

Nevertheless, the industry is confident in the recovery of steel prices.

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On June 4, the World Steel Association released its Short Range Outlook (SRO) for 2020 and 2021, forecasting steel demand will contract by 6.4%, dropping to 1,654 million metric tons due to the COVID-19 crisis. However, the forecast says 2021 steel demand will recover to 1,717 million metric tons, an increase of 3.8% over 2020.

The SRO suggests Chinese steel demand recovery will be “more visible in the second half of 2020. It will be driven by construction, especially infrastructure investment, as the government has put forward several new infrastructure initiatives.”

Within the steel market, the automotive industry will feel the greatest impact or consequences of the COVID-19 crisis. The steel industry is expected to lose sales of 20% in 2020 alone, on top of the losses of the past two years. Moreover, recovery might take several years due to slow income growth and remote working. The only silver lining is that safety concerns with respect to public transportation might boost demand for passenger cars in the short term.

Reactivation signals in the steel sector

After a 10-day stoppage in mid-May, ArcelorMittal resumed its operations at its Bosnia steel plant. The plant was forced to shut down due to low steel demand. The Bosnian government imposed a countrywide lockdown in response to the coronavirus outbreak.

The plant employs about 1,400 employees. It was only able to open after cost-cutting measures were implemented, such as renegotiating gas and power prices with suppliers, particularly after union employees declined a proposed 10-20% pay cut for managerial positions.

Other positive signals have been seen at Cleveland-Cliffs, as the company plans to restart its Tilden iron ore mine in Michigan at the end of June and resume the construction of its hot-briquetted iron plant in Toledo, Ohio.

The mine operation was suspended in April while construction of the plant was halted in March due to the decline in steel demand.

Will Chinese steelmakers have a post-pandemic competitive advantage?

There are some concerns about the competitive advantage Chinese steelmakers might gain from the pandemic crisis. Nippon Steel executive vice president Katsuhiro Miyamoto said, “China has managed to bring back economic activity quickly while countering the infection, which will give a relative advantage for Chinese mills in boosting competitiveness and financial health.”

“Given the high volume of steel output, China continues to import iron ore when supply is tight due to the pandemic, which will keep prices of the raw material at high levels,”he added.

Miyamoto might not be wrong. iron ore supply is getting tighter.

The world’s largest iron ore producer, Vale, revised its iron ore production guidance for the third time this year. The current production guidance for 2020 is between 310 million metric tons and 330 million metric tons of fine and undetermined for pellets from their initial reported production guidance of 355 million metric tons and 340 million metric tons of fines and 44 million metric tons of pellets.

The revision comes as Vale’s operations have been impacted by the COVID-19 crisis. The Itabira complex, which provides pellet feed for the pelletizers of the Tubarão Complex was ordered to shut down by the local government..

Nevertheless, Vale is expected to supply more iron ore to China in 2020 than in 2019, according to  the China Iron and Steel Association.

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Actual metals prices and trends

The Chinese slab price rose 3.1% month over month to $512.82/mt as of June 1 and the Chinese billet price rose 6.9% to $427.35/mt, both reversing last month’s trend.

Chinese coking coal rose 10.7% to $265.62/mt.

U.S. three-month HRC rose 7.4% to $535/st. U.S. shredded scrap steel fell 4.6% to $268/st.

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