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Overcapacity was the word of the day at the Global Forum on Steel Excess Capacity last week.

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The forum, which took place Sept. 20 in Paris, brought together the world’s biggest steel-producing nations.

“The global challenge of overcapacity has strained trade relations and the global trade architecture to its breaking point,” E.U. Trade Commissioner Cecilia Malmström said. “Progress in this Forum at this sensitive time demonstrates that multilateral cooperation is not only possible, but that it is actually the best tool to tackle global challenges. Putting this agreed package in place is something that the European Union will now follow closely. Our workforce and our industry depend on these commitments being carried out.”

Vice-President for Jobs, Growth, Investment and Competitiveness Jyrki Katainen added: “This sends a clear message: we will not repeat the costly mistakes of the past, and must tackle excess capacity and its root causes to avoid dire social, economic, trade and political consequences in the future. This will protect growth and jobs in an efficient, sustainable EU steel industry. A lot of work lies ahead though and all members of the Global Forum will have to continue implementing their commitments resolutely and report to G20 Leaders.”

The Paris meeting built on last year’s meeting in Berlin, during which members agreed to embark on a package of reforms to address global steel overcapacity.

According to the European Commission statement, the members will assess subsides contributing to overcapacity by the end of the year and “identify further reductions to be taken” in 2019.

In other steel news, the European Commission statement refers to the U.S.’s Section 232 tariffs, which impact steel and aluminum, calling them “unjustified.”

While a select few countries have negotiated exemptions and quotas with respect to the tariffs, the E.U. remains subject to the tariffs.

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“The Commission has acted among others through trade defence, imposing antidumping and anti-subsidy duties, to shield the EU’s steel industry from the effects of unfair trade,” the release stated. “The EU currently has an unprecedented number of trade defence measures in place targeting unfair imports of steel products, with a total of 53 anti-dumping and anti-subsidy measures. The EU has also activated all legal and political tools at its disposal to fight unjustified US 232 measures.”

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This morning in metals news, the Office of the United States Trade Representative (USTR) dished out criticism for a global steel forum and its efforts toward curbing excess steel capacity, Chinese steel rebar prices are up and Walmart warns tariffs could result in price increases.

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USTR Criticizes Global Steel Forum

Following the Global Forum on Steel Excess Capacity ministerial meeting held in Paris yesterday, the USTR released a statement questioning the forum’s efficacy in efforts to curb global steel capacity.

“The United States thanks Argentina for its chairmanship of the Global Forum and for its efforts to achieve meaningful outcomes from the Forum process this year,” the statement begins. “The United States has been an active and committed partner in this process, working to seek prompt implementation of the Forum’s past policy recommendations, which are aimed at reducing excess capacity as well as restoring balance and market function in the global steel sector.”

However, the USTR argued the forum has not done enough to realize its goals.

“Unfortunately, what we have seen to date leaves us questioning whether the Forum is capable of delivering on these objectives,” the statement continued. “We do not see an equal commitment to the process from all Forum members. Commitments to provide timely information critical to the proper functioning of the Forum’s work, for example, have gone unfulfilled. More importantly, we have yet to see any concrete progress toward true market-based reform in the economies that have contributed most to the crisis of excess capacity in the steel sector.”

Chinese Rebar Prices Rise

Chinese construction steel rebar prices were up Friday, according to a Reuters report.

According to the report, the most-active contract on the SHFE rose 0.1% on Friday.

Walmart Warns of Price Increases as a Result of Tariffs

On the heels of Washington’s announcement this week of the forthcoming imposition of tariffs worth $200 billion on imports of Chinese goods, Walmart wrote a letter to USTR Robert Lighthizer warning that it may have to raise prices, Reuters reported.

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According to the report, the letter cited products which could be hit with price increases, which included gas grills, bicycles and Christmas lights.

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This morning in metals news, contract talks between United Steelworkers and U.S. Steel have been “frustrating,” China’s scrap usage increased during the first six months of the year and Thyssenkrupp’s CEO says the firm will forge on with plans to merge its European operations with those of Tata Steel

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Negotiations Continue

Contract talks between U.S. Steel and United Steelworkers continue to drag on, with the union referring to the dialogue as “frustrating,” according to a report by the Times of Northwest Indiana.

The union’s contract expired Sept. 1, but union members have stayed on the job. Earlier this month, the union voted to authorize a strike at U.S. Steel.

“These workers have made a number of sacrifices over the past several years – including three years with a wage freeze – to put this company back on track,” USW International President Leo W. Gerard said in a prepared statement Sept. 10. “Now that U.S. Steel is expecting to make a profit of nearly $2 billion this year, it is time for the workers to share in the success U.S. Steel is seeing now.”

Scrap Usage on the Rise in China

According to S&P Global Platts, China’s scrap usage in the first half of 2018 increased.

Per the report, 87.72 million mt of scrap was used by steel mills in the first half of 2018, while 148 million mt was used in all of 2017.

Thyssenkrupp CEO Says Tata Deal Still On

The interim chief executive of Thyssenkrupp says the German firm’s previously agreed upon deal to merge its European operations with those of Tata Steel will continue as planned, according to a Reuters report.

Heinrich Hiesinger, the previous CEO, stepped down in July, forcing the German firm to replace the chief executive who helped bring the Tata deal to fruition. Guido Kerkhoff has served as interim CEO following Hiesinger’s departure.

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The merged operations would combined to create Europe’s second-largest steelmaker, behind only ArcelorMittal.

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This morning in metals news, India is considering upping its steel import duty, China’s spending on subways could assist its steel sector and an update in the Rusal sanctions saga.

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Supporting the Rupee

In order to give support to its currency, the Indian government is considering increasing its import duty on some steel products, according to a Reuters report.

Current duties range from 5% to 12.5%, according to the report, while the government is considering raising the duty to 15%.

Steel and Subways

China’s push toward subway investment could be a boon for its steel sector, Reuters reported.

Last month, the cities of Suzhou and Changchun announced plans to spend the equivalent of billions of dollars to add approximately 1,000 miles to their underground subway systems, according to the report.

A Little Leeway

With the Oct. 23 deadline approaching, many are wondering if the U.S. will in fact rescind the sanctions imposed back in April on Russian companies (including aluminum giant Rusal).

Even so, a new development could help to mitigate the type of market reaction seen in April, when aluminum prices skyrocketed on the news of the sanctions.

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According to Bloomberg, the U.S. Treasury Department is allowing Rusal’s existing customers to negotiate new contracts.

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Moody’s Investors Service has said India will be the brightest spot for the steel sector over the next 12-18 months, according to a report by the Hindu Business Line.

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Moody’s pointed out that India’s steel consumption was rising at least 5.5%-6% every year, tracking strong GDP growth of 7.3%-7.5%.

It said rated Indian steel producers had only marginal exposure to the U.S. Moody’s has estimated that their indirect exposure may also be limited, given most of their sales were to domestic automotive and manufacturing companies.

In fact, on Tuesday the Indian Steel Ministry, perhaps buoyed by sentiments such as those expressed by Moody’s, issued a statement saying it was hopeful of occupying the second slot in global steel output (after China), while the government has also taken steps to encourage secondary steel producers to boost performance.

According to Moody’s, with minimal new steel capacity expected to be commissioned until 2021 in India, robust steel demand — especially from the construction, infrastructure and automotive sectors — would keep end-product prices high, even as rising costs for key inputs, like coking coal and iron ore, put pressure on profitability.

Moody’s also noted the outlook for the Asian steel industry was stable, reflecting the consideration that the profitability of rated producers will increase moderately over the next 12 months against the backdrop of overall steady regional demand.

The robust steel demand, especially from the domestic construction, infrastructure and automotive sectors would keep end-product prices high, even as rising costs for key inputs, coking coal and iron ore pressure profitability.

The Indian Government believes that, in conjunction with the primary steel sector, the secondary steel sector holds enormous potential for growth and opportunities.

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“Strong performance of the secondary steel sector has added muscle to India’s steel production. Encouraged by the overall potential, the Government of India has taken various initiatives to improve the performance of this sector. Based on the present growth pattern, it is expected that India will rise to the second position after China,” the statement said.

Grain-oriented electrical steel (GOES) prices fell for the second month in a row, with multiple large power equipment manufacturers requesting exclusions from the Section 232 tariffs.

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What makes these requests noteworthy involves the arguments made by each of the firms. One of the most interesting arguments pits two different firms on opposite ends of the national security argument – Eaton Corp (parent company of Cooper Power Systems) and AK Steel.

The Section 232 exemption request form asks a specific question with regard to whether the steel is used to support national security requirements. Cooper Power responded by stating the materials in the exemption are used to make transformers for the electrical grid, of which infrastructure is considered essential to national security: “This product allows Cooper Power Systems, LLC to meet federally maintained efficiency requirements in Liquid Filled Transformers as published by the D.O.E.”

The Cooper Power request involved, “chemically etched or mechanically scribed Domain Refined Grain Oriented Electrical Steels, capable of retaining domain refined properties post anneal, used in the manufacture of Distribution Transformers,” according to its exemption request. Cooper Power argued “the only domestic producer of electrical steels in the U.S., does not manufacture a Domain Refined Electrical Steel capable of being annealed after Transformer core production, while still retaining the Domain Refined properties.”

Ironically, Metglas, and not AK Steel, offered a rebuttal to the Cooper Power exclusion request that specifically addressed alternative products, notably amorphous ribbon, that could meet DOE requirements. Metglas also challenged the volumes Cooper Power had indicated – specifically that the volumes requested in the exclusion far exceed Cooper Power’s actual volume requirements.

Meanwhile, ABB’s exclusion request cited insufficient U.S. availability of 27M-0H, which it claims is not manufactured in the U.S. (This grade is high-permeability GOES.)

AK Steel — the only mill that challenged the ABB exclusion — made several arguments in its rebuttal, including:

ABB has moved away from several suppliers in the US and globally over the past few years. Changing suppliers and materials seems to be less of a concern to ABB when it achieves a financial return by purchasing foreign GOES. AK Steel is, and has been for many years, the largest supplier of GOES to the U.S. market. ABB knows AK Steel’s product very well and both ABB and its customers can plan to incorporate AK Steel GOES with little effort or hardship, just as they have in the past.

The company goes on to say, “As the largest domestic producer of GOES, a large percentage of transformers utilize AK Steel GOES products and it is a very well-known and broadly utilized product, both by ABB and their customers.” However, neither the buyer or supplier has explained fully why the GOES market appears more opaque than many other steel markets.

The Takeaway

In reality, power equipment manufacturers deploy a more multifaceted approach to the GOES sourcing decision. In fact, multiple GOES grades can meet various requirements as established by the DOE but the ultimate award decision made by a buyer considers many variables, such as: core loss, regulatory requirements, and the price arbitrage among alternative GOES products at any one given time. Together, these variables impact the buying decision.

From a sourcing perspective, manufacturers want and need the ability to maintain flexible sourcing options, not only to mitigate risk but to minimize the pricing power of a monopoly supplier. Moreover, the transformer market is dominated by global players who can easily shift production of transformer cores elsewhere (as they did after the unsuccessful 2014 anti-dumping case brought by AK Steel).

Buying organizations will continue to shift production away from the U.S. if the sourcing equation does not make economic sense. Regardless, should Big River Steel indeed move into this market —  as many hope that they will — AK Steel will need more than Section 232 to defend its market position.

In a subsequent post, MetalMiner will address the exemption request from Posco and the Section 301 tariffs.

Exact GOES Coil Price This Month

The U.S. grain-oriented electrical steel (GOES) coil price fell for the second month in a row from $2,857/mt to $2,763/mt. The MMI fell seven points from 207 to 200.

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The GOES MMI® collects and weights 1 global grain-oriented electrical steel price point to provide a unique view into price trends over a 30-day period. For more information on the GOES MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

The Stainless Steel Monthly Metals Index (MMI) fell again this month. The slide of six points moved the index to 72 from the previous 78 reading. Lower nickel prices led the fall, while domestic stainless steel surcharges also fell.

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The drop in the index comes a result of a MetalMiner adjustment to a couple of metals that make up the Stainless MMI. The adjustment is not due to a dramatic fall in nickel or stainless prices.

LME Nickel

LME nickel prices traded lower in August and have continued to drop so far in September.

Nickel prices seemed more volatile in August than for the whole of 2018. Current prices have returned to January 2018 levels. Despite the recent downtrend, nickel prices have remained in an uptrend since last summer (June-July), when prices started to increase sharply.

Source: MetalMiner analysis of FastMarkets

A fundamental tightness in the nickel market could also add more support to nickel prices. Combined nickel stocks have fallen by 45% since the beginning of 2016. LME nickel stocks have fallen for 11 consecutive months, and currently stand at 248,328 tons (back to 2013 levels).

SHFE stocks have fallen by 82% since 2016, when SHFE stocks reached 110,000 tons. Current SHFE stock levels stand at 18,844 tons.

Domestic Stainless Steel Market

Domestic stainless steel surcharges fell for the second time since the beginning of the year. The 316/316L-coil NAS surcharge fell to $0.99/pound, while the 304/304L decreased to $0.70/pound.

Source: MetalMiner data from MetalMiner IndX(™)

The pace of stainless steel surcharge increases seems to have slowed this month, along with steel (and stainless steel) price increases. However, stainless steel surcharges remain in a clear uptrend and appear well above 2015-2017 lows.

What This Means for Industrial Buyers

Stainless steel price momentum slowed down slightly this past month. However, both steel and nickel remain in a bull market.

Therefore, buying organizations may want to follow the market closely for opportunities to buy on the dips. To understand how to adapt buying strategies to your specific needs on a monthly basis, request a free trial of our Monthly Outlook now.

Actual Stainless Steel Prices and Trends

Both Chinese 304 stainless steel coil fell by 1%, while Chinese 316 stainless steel coil prices increased this month by 3.02%.

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Chinese Ferrochrome prices decreased this month by 4.25%, falling to $1,848/mt. Nickel prices also fell 9.56% to $12,570/mt.

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This morning in metals news, the United Steelworkers union is reportedly not happy with U.S. Steel’s latest contract proposal, Vice President Mike Pence touts a steel resurgence in Michigan and South Korean firms seek an exemption from the E.U. steel safeguards.

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Union Not Happy with U.S. Steel Proposal

Contract talks are ongoing between U.S. Steel and the union representing its workers, United Steelworkers. However, according to a report by the Times of Northwest Indiana, the firm’s latest proposal wasn’t met positively by the union.

Pence Visits Michigan, Talks Steel Comeback

In a visit to a steel processing facility in Grand Rapids, Michigan, Vice President Mike Pence touted the administration’s steel tariff and its role in aiding the steel industry, the Detroit News reported.

“Get ready to get even busier,” the vice president told company officials and hard-hat workers during a speech at the steel processing facility, according to the report.

South Korea Seeks Exemptions

South Korean steel producers are looking to win exemptions on provisional steel safeguards imposed by Europe, S&P Global Platts reported.

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Steel product exports from South Korea into Europe amount to 3.24 million mt per year, according to the report.

Nucor Suspends Operations at Two Mills Ahead of Hurricane Florence

Nucor halted operations at two of its mills in the Carolinas ahead of the expected impact of Hurricane Florence on Thursday, according to an Argus report.

The plants in question are Nucor’s Berkeley, South Carolina sheet mill and its Hertford, North Carolina plate mill.

The Raw Steels Monthly Metals Index (MMI) traded sideways this month, driven by slower domestic steel price momentum. The current Raw Steels MMI fell to May 2018 levels.

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Domestic steel prices have started to fall slightly. Prices traded lower in August, showing some downward momentum. Buying organizations may want to remember that this year domestic steel prices have remained at more than seven-year highs.

Source: MetalMiner data from MetalMiner IndX(™)

All forms of steel decreased in August. HRC, CRC and HDG showed weaker momentum. Meanwhile, plate prices held stronger in August. Plate prices had the support of low metal availability. However, plate prices lost momentum at the end of August and prices decreased. So far in September, prices for all steel forms declined.

The recent slowdown in steel prices may comes down to historical steel price cyclicality. Domestic steel prices have remained in a sharp uptrend since January 2018. Prices have started to come off slightly but remain higher than last year’s average.

Chinese Steel Prices

So far in September, Chinese steel prices have increased. Chinese steel prices increased in August, recovering price momentum. Chinese steel prices appear to be in a recovery and have started an uptrend, after a slight downtrend since the beginning of the year. Higher Chinese domestic demand has supported prices.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese steel prices tend to drive U.S. domestic steel prices. Therefore, buying organizations may want to keep a close eye on pricing.

The Spread

The hot-rolled coil and cold-rolled coil spread seems to be weaker than historical pricing.

The spread has been historically around the +/- $100/st level. However, the spread started a divergence back in November 2015, reaching around $200/st. 

The current spread now stands at $79/st. This means that CRC and HRC prices have become closer than anticipated. Market anomalies sometimes create divergences in prices. However, this may correct soon.

What This Means for Industrial Buyers

Since steel prices remain high, buying organizations may want to follow price movements closely to decide when to commit to mid- and long-term purchases. Adapting the right buying strategy becomes crucial to reducing risks.

Only the MetalMiner monthly outlooks provide a continually updated snapshot of the market from which buying organizations can determine when and how much to buy of the underlying metal. Click here for more information on how to mitigate price risk year-round and request your two-month free trial.

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Actual Raw Steel Prices and Trends

The U.S. Midwest HRC 3-month futures price fell this month by 3.68%, falling to $785/st.

Chinese steel billet prices increased sharply this month by 11.56%, while Chinese slab prices increased just by 1.17%, moving to $634/mt.

The U.S. shredded scrap price closed the month at $354/st, decreasing from last month.

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This morning in metals news, prices of steel and raw materials in China are slumping, India is eyeing the No. 2 spot in the list of top global crude steel producers and copper jumps as the euro rises.

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Prices Drop in China

Prices of steel and raw materials in China have continued to decline, all the way down to multiweek lows, according to a Reuters report.

The tumble comes as Beijing considers output curbs, according to the report.

India Wants No. 2 Steel Producer Spot

India has aspirations to climb the global steel producer list, moving to No. 2, according to the Economic Times.

According to the report, the Indian government’s National Steel Policy 2017 set a goal for 2030 of 300 million tons of steel production per year.

Copper, Euro Rise

The copper price rose Tuesday in tandem with a rising euro, Reuters reported.

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LME three-month copper jumped 0.7%, while the most-traded copper contract on the SHFE moved up 0.5%.