The Stainless Monthly Metals Index (MMI) increased by 6.0% this month, as ATI issued a major announcement and China ups its stainless imports from Indonesia.
ATI exits stainless steel commodity market products
Allegheny Technologies Incorporated (ATI) announced Dec. 2 that the company would exit the standard stainless sheet product market. The move reduces availability of standard 36″ and 48″ wide material.
The announcement comes as part of the company’s new business strategy. ATI will focus on investing in enhanced capabilities on higher-margin products, primarily in the aerospace and defense industries.
ATI’s departure from the stainless steel commodity portion of the market also leaves a gap for 201 series materials, which is why 201 base prices will see bigger increases than 300 or 430 series materials. Both NAS and Outokumpu announced a 201 base price increase amounting to approximately $0.0500/lb.
The Raw Steels Monthly Metals Index (MMI) increased by 16.5% this month, as steel prices showed strength in December.
U.S. steel events
The American Iron and Steel Institute, the Steel Manufacturers Association, the United Steelworkers union, the Committee on Pipe and Tube Imports and the American Institute of Steel Construction sent a letter to Joe Biden urging him to keep the 25% national security tariffs on steel imports that were imposed in 2018.
The industry groups emphasized that the tariffs are essential “to ensure the viability of the domestic steel industry in the face of this massive and growing excess steel capacity.”
“Removing or weakening of these measures before major steel producing countries eliminate their overcapacity — and the subsidies and other trade-distorting policies that have fueled the steel crisis — will only invite a new surge in imports with devastating effects to domestic steel producers and their workers,” the letter continued.
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The Copper Monthly Metals Index (MMI) increased 3.3% this month, as copper producers have faced challenges that are impacting supply.
After a slow December, copper prices continued to increase the first week of January. Prices surpassed the $8,000/mt mark.
However, copper prices remain volatile. As the pandemic continues to develop, the U.S. dollar remains around 90, future demand is uncertain and supply is strained.
Supply constraints from copper producers
Major copper producers are experiencing supply constraints.
On Christmas Eve, MMG declared force majeure on its Las Bambas copper mine in Peru as the local community continued to block a nearby road in protest, making it impossible for the company to transport its concentrate to the port to be shipped. The blockage started Dec. 12, but production continued.
Las Bambas represents approximately 2% of global copper production.
Meanwhile, on Jan. 4 the Mongolian Government informed Rio Tinto — through the miner’s partly-owned subsidiary Turquoise HillResources — that if the Oyu Tolgoi underground expansion did not prove to be more profitable, it would terminate their 2015 agreement on fiscal terms.
The expansion would make Oyu Tolgoi the fourth-largest mine in the world by 2030. As such, a shutdown would represent a significant supply disruption.
Large disruptions mean supply constraints, which in the long term support prices even more.
Members of the China Smelters Purchase Team (CSPT) lowered treatment and refining charges to $53 per tonne and 5.3 cents per pound for the first quarter of 2021. These charges represented a 8.6% cut compared to the previous quarter.
Similarly, the annual TC/RC benchmark, set by Chinese smelters and Freeport-McMoRan, declined for the sixth consecutive year. The benchmark settled in at $59.50 a tonne and 5.95 cents per pound.
The TC/RC declines come as no surprise.
Mine supply remains tight (as mentioned above). Furthermore, smelting capacity continues to increase, particularly in China. This mix forced smelters to accept lower charges in order to secure raw material.
TC/RCs are a good indicator of raw material available in the market. When primary material is widely available, TCs go up. Meanwhile, when primary material is scarce, smelters lower their TCs. This can affect market sentiment and, ultimately, the price.
On Dec. 23, 2020, the U.S. Department of Commerce announced the creation of the Aluminum Import Monitoring and Analysis (AIM) system.
The system, similar to the Steel Import Monitoring and Analysis (SIMA) system, will collect and publish data on aluminum imports into the U.S.
The system will allow users to track trade flows more easily to help spot trends earlier and to provide better guidance to the domestic industry and government. Likewise, better data collection and its analysis should allow domestic producers to compete on a level playing field.
The system is expected to be available on Jan. 25, 2021.
LME aluminum changes
The London Metal Exchange announced its intention to move forward with its sustainability strategy after receiving market feedback. Part of the strategy will include a spot trading platform for price research and trading of low-carbon aluminum for interested buyers and sellers.
As part of this strategy, the LMEpassport, a digital credential register, will be launched to allow greater visibility of carbon sustainability criteria.
The LME will implement it gradually over three years across its physically settled metals requiring Certificates of Analysis (CoAs) and other value-add information to facilitate disclosure under existing standards across metal brands. The service will start in 2021 and will initially focus on aluminum.
Demand from automotive and white goods manufacturers has been strong in the past few months.
For this reason, mill sales have increased. However, mills are not operating at full capacity. Rather, mills have kept long lead times.
This is leading to declining inventory levels across the U.S. stainless steel market. The trend follows several months of destocking in the distribution sector, as well as at manufacturers’ warehouses.
This mix could create challenges for manufacturers to replenish their depleted stock levels in upcoming months. Nevertheless, mills remain hesitant to ramp up capacity to pre-pandemic levels given current unstable market conditions.
In the meantime, these dynamics may continue to support stainless steel prices.
Reported sales of household appliances in China this October showed a nearly 10% year-over-year increase.
Meanwhile, demand for stainless steel increased approximately 13% year over year.
On Nov. 19, the Shanghai International Energy Exchange (INE), a subsidiary of the SHFE, started trading new bonded copper futures contracts. This contract addresses the second of “two” spot markets for copper — the tax-included domestic market currently supported by the dollar-denominated SHFE contract and the on-shore “bonded facility” market based in Shanghai to be denominated in RMB.
Not only does this create a new risk management tool for copper buyers, but it suggests China is now moving toward fulfilling its “dual circulation” strategy and bringing its currency more fully into the global market.
High demand incentivized production. Apparent stainless steel demand for 2020 is expected to rise by 6.4% to 25.5 million metric tons.
Besides producing stainless steel, China also imports significant quantities.
Most stainless steel imports come from Chinese mills in Indonesia such as Tsingshan Holding Group. China imported 1.1 million metric tons of stainless steel in the first three quarters of the year, a 24.3% increase compared to 2019.
Furthermore, China exported 2.37 million metric tons during the same period, a 12.4% decline from 2019.
South Africa chrome export tax
The world’s largest chrome producer, South Africa, proposed an export tax on chrome ore.
The export tax could have a significant impact for China, as 83% of its chrome ore imports came from South Africa in 2019.
The chrome export tax aims to incentivize the production of ferrochrome in South Africa. However, building or expanding chrome smelter capacity in South Africa could be challenging in the country, as smelters are highly power intensive.
The country already battles with unreliable electricity supply, which makes production more costly.
If South Africa approves the chrome export tax, stainless steel prices could go up as production costs rise.
The chrome export tax is not likely to impact stainless steel prices in 2020. However, the tax may have an impact on the first quarter of 2021.
U.S. steel prices continued to increase in October for the third consecutive month.
HRC, CRC, HDG and plate prices increased by 15.4%, 10.0%, 9.0% and 5.3%, respectively. As demand recovers, so have prices.
Wire rod, however, was the only form of steel that did not increase in price this month, as it instead remained flat.
In contrast, Chinese HRC, CRC and plate prices increased around 2% in October. Meanwhile, HDG prices remained flat throughout the month. For the second month,
U.S. prices surpassed Chinese HRC, CRC and HDG prices. No price arbitrage existed for Chinese buyers, as local prices were lower than imported prices. Chinese prices had a four-month uptrend before prices flattened. On the other hand, U.S. prices started their uptrend approximately 2.5 months ago.
For the past two years, Chinese prices have led U.S. prices. Will that relationship mean U.S. prices will flatten within the next month and half?
Domestic demand increases, supports U.S. steel prices
Steel demand in the U.S. seems to be getting stronger.
As we have reported for a few months now, U.S. automotive production is on the rise.