The International Energy Agencyrecently upgraded its estimate for rising U.S. shale production this year, projecting output will increase by 500,000 barrels per day by the end of 2017, which will translate to an increase of 170,000 bpd averaged over the year.
Benchmark crude prices subsequently fell in London. In the first week of January, U.S. crude production rose to 8.95 million bpd, the highest level since April. Oil-rig use expanded to 529 in the prior week, a 67% increase from the 2016 low of 316.
Japanese Steel Officially Worried About Trump
Japan’s steel industry is concerned over the risks of a U.S. exit from the Trans-Pacific Partnership deal and reform of the North American Free Trade Agreement by the incoming Trump administration, a Japanese industry official said on Friday.
This week, the reality of a hard Brexit sunk in across the pond in the U.K. and Europe. The instability that might follow after elections in other European countries in the coming months could create volatility in all commodities markets, not just metals.
Here in the U.S., President Donald J. Trump was inaugurated today and promised “America first” in all the dealings of his new administration. In metals, this means that tariffs of 251% were confirmed on Chinese cut-to-length steel plate even before Trump even got into office. So, across the globe it looks like things are getting really, really populist. Is this good for metal prices?
One thing that Trump has already caused, again before even being president, is a weakened U.S. dollar against other global currencies. Presidents and even presidents-elect usually refrain from even talking about the value of the currency because setting its value is seen as the job of the Federal Reserve and its chairman and the nation’s chief executive talking about the value of the dollar can cause volatile swings in the currency.
Trump, though, as everyone should know by now, does not obey convention and freely told reporters that he would like a weaker dollar. This is actually bullish for the metals we track, but our Lead Forecasting Analyst, wrote this week that the dollar’s bull run may not be over, despite Trump’s wishes.
Populism in the Far East
Indonesia tried a protectionist raw ore export policy way back in 2014 and this week finally weakened it (a little) to allow some nickel ore out of the country on certain conditions. Ironically, the country that picked up the slack as the top Chinese nickel-pig-iron raw materials supplier after the Indonesian ban, the Philippines, now has its own wildly populist leader, President Rodrigo Duterte, whose fiercely environmentalist Environment Secretary, Regina Lopez, has cancelled six mine permits.
The department said in a statement that it has set a final dumping margin of 68.27% for Jiangyin Xingcheng Special Steel Works Co. Ltd., the only respondent in the case, “for the China-wide entity’s failure to cooperate.”
In the countervailing duties investigation, Commerce calculated a final subsidy rate of 251% for mandatory respondents Jiangyin Xingcheng Special Steel Works Co. Ltd., Hunan Valin Xiangtan Iron & Steel, and Viewer Development Co., Ltd., based on the application of adverse facts available. All other producers/exporters in China were also assigned a final subsidy rate of 251%.
Chinese Province Admits Making Up GDP Figures
China’s northeastern Liaoning province, which relies on steel production as its growth engine, had inflated its GDP figures from 2011 to 2014, said province governor Chen Qiufa on Jan. 17 in his annual work report, according to the state newspaper People’s Daily (link in Chinese). It is the first time the Chinese government has publicly admitted to faking official statistics at any level.
An Indonesian Finance Ministry official said the government may not be done tinkering with export tax rules involving raw ore just yet. The island nation’s Energy and Mineral Resources Ministry partially lifted a ban on raw ore exports late last week.
“We want the export duties to push domestic processing. That’s the principle,” Suahasil Nazara, head of the Fiscal Policy Office at the Finance Ministry, told reporters, adding that the taxes were “not just for increasing state revenues. There’s a high possibility we will continue with a scheme that has layers, depending on completion of smelters.”
Outokumpu Adds to North American Stainless Rebar Line
Outokumpurecently unveiled a new stainless rebar offering for the North American market at the World of Concrete trade show in Las Vegas.
Following an expansion of its stainless rebar capabilities at its facilities in Richburg, S.C., Outokumpu will now sell stainless rebar in coil, cut-to-length or in bent shapes. The Richburg facility has capabilities to cover a full range of rebar dimensions between sizes #3 and #8 (from .375 inches to 1 inch) and lengths up to 60 feet, and will offer short lead times for customers in North America.
Indonesia introduced new rules last week that will allow exports of nickel ore and bauxite and concentrates of other minerals under certain conditions in a sweeping policy shift by the key global supplier, Reuters reported.
A ban on unprocessed ore exports was imposed in 2014 to, the thinking went, encourage investment in mills and smelters in the islands. The government of Southeast Asia’s biggest economy has faced a hefty budget deficit since and missed its 2016 revenue target by $17.6 billion.
The resumption of shipments may have been drafted to help stop the gap.
The new regulations, which took effect on Wednesday, sent nickel prices tumbling more than 5% to a four-month low of $9,660 a metric ton before they recovered.
The price you pay for your steel pretty much depends on two things:
Prices in China, since they set the floor for international steel prices.
How much of a premium U.S. mills are able to justify over that price.
Graphic: Raul de Frutos/MetalMiner.
Prices in China are moved by supply and demand dynamics. We’ve explained in previous posts that overall, things are setting up for Chinese prices to continue to trend higher. While demand has been better than expected, China met its 2016 capacity cuts goal and further cuts are expected to take place this year as the country tackles its pollution issues.
However, in this post we’ll focus on the premium that U.S. customers pay. This price spread between U.S. and international prices is also very important and could make your purchases more expensive in the coming months.
Spread between HRC US and HRC China. Source: MetalMiner IndX.
Spreads have fallen sharply over the past few months. The spread between U.S. and Chinese hot-rolled coil (HRC) prices is now $97/ton. To put this in context, consider that this spread was $276/ton just seven months ago. Read more
Ore production jumped 22% between April and October, according to figures released by the government. Iron ore production stood at 100 million metric tons during the resurgence, against 81 mmt during the same April to October period a year ago. What’s brought even more cheer is the news that exports, too, jumped 9 times their previous level, to 9 mmt from last April to September, as compared to 1 mmt, the same period last year.
With a steep price hike in global markets aided by protectionist measures for the domestic steel industry, will India see a resurgence in iron ore exports? Not so fast.
India has plentiful iron ore stockpiled but taxes are holding up exports. Source: Adobe Stock/nikitos77.
The protectionist measures imposed by India’s government previously included an export duty tax of 30% on high-grade iron ore. Many within the mining sector are of the opinion that the export tax must go, or at the very least be reduced, to boost exports. Read more
Average grain-oriented electrical steel surcharges fell for the third year in a row. 2016 average surcharges took the biggest hit because Allegheny Technologies stopped production of GOES. AK Steel did not implement a surcharge until July 2016.
Our own GOES M3 MMI showed only small price movements from month to month. The index hit a low of 181 back in July and today shows a modest recovery to 192, a 5% gain.
GOES follows its own fundamentals (e.g. supply and demand) and does not always follow the price arc of other more common forms of steel such as cold-rolled coil or hot-rolled coil. In fact, some of the wider trade dynamics for those forms of steel had little to no impact on GOES.
Which brings us to a larger issue. Will President-elect Trump, who is arguably pro-steel and who has gone on record against China’s trade practices, implement any policies that will likely impact GOES markets?
To begin, the nature of trade between the two countries, the U.S. and China, appears more complicated than what can be seen by the naked eye. Raw material/commodity-like supply chains lack the complexities of supply chains found in industries such as electronics. Blanket tariffs are easy to issue and calculate for commodities that move from point A to point B. But electronics industry supply chains involve components, parts, sub-assemblies, final assembly, etc. across multiple countries and locations. A blanket tariff on electronics will harm China much more than other countries as the tariff would apply to the “final point of assembly.” This could create all sorts of electronics shortages and problems here in the U.S.
Why Are We Discussing Electronics Supply Chains?
Because it would be easier to get tougher on China for commodities such as steel. And though China has curbed excess capacity in recent years, we could see a scenario in which tough trade policies such as a tariffs could significantly limit Chinese imports, which currently make up about 10% of domestic steel demand according to a recent analysis by Stratfor.
China will retaliate but a scenario exists that China could account for far less steel imports into the U.S. than it currently does (China has cut excess capacity already). In terms of grain oriented electrical steel, however, China does not represent the bulk of GOES imports into the U.S., in fact, Japan, Russia and the U.K. are far bigger GOES exporters to the U.S.
Therefore, any President Trump trade policy that goes into effect (no pun intended) will likely have a bigger impact on the broader steel markets and a far less significant impact on the U.S. GOES market.
Next month, we will examine the potential impact of NAFTA changes on GOES markets.
Grain-Oriented Electrical Steel M3 retook last month’s loss rising by more than 3%.
For full access to this MetalMiner membership content: Log In | Join
By anyone’s reckoning, iron ore and coking coal had a stellar year in 2016. Driven by infrastructure investment and a robust construction market, Chinese imports of our iron ore could top 1 billion metric tons for the first time in 2016. Prices more than doubled in the space of 12 months and the supply-demand situation seemed to be largely in balance for much of the year.
After topping $80 per mt in early December, prices eased back a little toward the end of the year prompting many to ask “have we seen the peak in iron ore prices?” Mills typically cut output during the quieter winter months when construction demand slows. Many steel mills have already curbed output due to chronic smog alerts across northern China.
Seasonally, it would not be unusual if iron ore prices remained subdued up to the Chinese New Year and then picked up in preparation for the peak production months of late spring and summer. But, while Chinese demand defied many expectations of a slowdown in 2016, the recent softening of both iron ore and coking coal raw material prices, and the price of some finished steel products over the last week or 10 days, has lent support to some analysts’ predictions that we could be seeing markedly lower Iron ore prices throughout this year and next. Read more
At the beginning of the year, it’s always fun to look forward and pick out some of the themes for the year. 2016 was certainly volatile as hot-rolled coil pricing went from $360 a ton to $600/ton, then back to the low $400s/ton before recovering to $600/ton. Phew! Read more