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 Recently, however, the U.S. rescinded the tariff with respect to Canada and Mexico amid ongoing attempts to pass the United States-Mexico-Canada Agreement (USMCA), the free trade agreement meant as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.
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%.
India’s first woman finance minister, Nirmala Sitharaman, announced fresh projects, including augmenting as much as 125,000 kilometers of rural roads, setting up more industrial corridors, & extending railway infrastructure, according to moneycontrol.com.
Steel company CEOs, like Chairman of Steel Authority of India Ltd (SAIL) Anil Kumar Chaudhary, told the Press Trust of India (PTI) that these were “welcome steps.” Billions of dollars have been earmarked to be spent every year on developing and reinforcing infrastructure.
The SAIL chairman’s rival, Tata Steel CEO and Managing Director T.V. Narendran, saw good news in the budgetary provisions. He said the provisions would boost the domestic steel market, which has otherwise been in a state of decline.
N.A. Ansari, joint managing director of Jindal Steel and Power Ltd., told reporters that improving railways through the public-private partnership model was an “opportunity” for India’s steel industry.
One day before the budget, as is the norm, the Economic Survey report was released, which reflects the health of the Indian company. That report has estimated the country’s steel output to hit 128.6 million tons (MT) by 2021 and consumption to reach 140 MT by 2023 on the back of investments in infrastructure, construction and automobile sectors.
On a macro level, the steel majors have welcomed the union budget; on the ground, smaller players have raised some red flags.
Integrated steel players in stainless and carbon steel did not join the cheering.
The budget proposal to hike customs duties on stainless steel items from 5% to 7.5% will rein in imports of semi-finished products by the unorganized sector of domestic producers. As K.K. Pahuja, president of the Indian Stainless Steel Development Association (ISSDA) was quoted in the Economic Times as saying, “This will barely change the scenario as there is little import of these semi-finished stainless-steel products in the country.”
Where imports do make a large dent in India is in stainless steel flat products, where its share is about 20%. This sector does need government protection, but a call to hike tariff rates was met with no success.
Large integrated steel producers face the threat of cheap steel being diverted to India after the U.S.’s decision to impose tariffs on Chinese and Vietnamese steel products. Because of it, the Indian Steel Association has been asking for an increase in the customs duty.
The finance minister did propose to cut customs duties on certain inputs for making cold-rolled grain-oriented sheets or electrical steels — used in critical power equipment — from 5% to 2.5%, according to the Economic Times. This has been welcomed, as it would encourage domestic production of such steel products in the country.
And Now, Over to the U.S. President…
A few days from now, representatives from the U.S. and India will meet to try and break the trade impasse between the two countries, on the heels of India’s new tariffs on U.S. goods.
On Tuesday, though, Trump tweeted, “India has long had a field day putting Tariffs on American products. No longer acceptable!”
The tweet was enough to raise eyebrows in India.
India had finally imposed retaliatory tariffs on 28 U.S. products, including steel products, from June 5 after over a year’s delay.
The move was aimed at countering the increase in steel and aluminum tariffs by the U.S. and its withdrawal of duty-free benefits to Indian exporters. India also raised customs duties on a host of products, including alloy steel and auto parts, in the budget presented July 5.
Movements of individual prices within the index were mixed.
LME nickel prices increased the most among price points in the index, up by 6.8% month over month. After June’s trend toward higher prices, the price dropped around July 1, then surged again and is essentially moving sideways at this time.
Source: MetalMiner analysis of the London Metal Exchange (LME) and FastMarkets
In June, rainy weather brought widespread flooding to Indonesia’s nickel hub on Sulawesi island. Estimates indicate a production shortfall of between 50,000-100,000 tons of nickel ore as a result, according to Indonesia’s Nickel Miners Association in press reports.
According to the latest numbers published by the International Nickel Study Group (INSG), as reported by Reuters, the supply deficit for the refined nickel market came in at 27,000 tons for the first four months of the year, down from 59,000 tons during the same period in 2018. The most recent INSG projections indicate the supply gap will close during the second half of 2019.
Domestic Stainless Steel Market
Source: MetalMiner data from MetalMiner IndX(™)
Stainless 304 and 316 NAS surcharges fell again this month, now similar to surcharge rates at the start of the year. Surcharges are still above 2016 lows and are still moving within the sideways band that formed in December 2016. Should the supply gap close as projected, this may cause surcharges to fall even further.
What This Means for Industrial Buyers
Stainless price performance was mixed this month, as primary nickel prices rose while stainless surcharges dropped once again.
Buying organizations will want to read more about our longer-term steel price trends with our Annual Outlook.
Actual Stainless Steel Prices and Trends
The U.S. 316 and 304 Allegheny Ludlum stainless surcharges dropped again this month — by 6% and 9%, respectively, to $0.83/pound and $0.56/pound.
Meanwhile, nickel prices were up quite a bit. The LME primary 3-month price increased by 6.8% to $12,710/mt. China’s primary nickel price increased by 4.27% to $14,658/mt. India’s primary nickel price increased by 4.3% to $13/kilogram.
Chinese nonferrous FeCr lumps decreased by 3% to $1,595/mt and FeMo lumps dropped by 2.3% to $17,548/mt.
This morning in metals news, Federal Reserve Chairman Jerome Powell hinted interest rate cuts could be coming later this month during testimony before the House of Representatives, Southern Copper Corp received authorization from the Peruvian government to build a $1.4 billion mine and U.S. steel shipments in May fell 0.8% from the previous month.
According to the report, he also hinted at possible interest rate cuts this month. Powell has come in for criticism from President Donald Trump for raising interest rates back in December, arguing the increase has prevented further economic growth.
Powell is scheduled to testify again Thursday before the Senate.
U.S. steel prices continued their clear drop this month, with prices dropping for HRC, CRC, HDG and plate.
Source: MetalMiner data from MetalMiner IndX(™)
HRC prices dropped by around 12% over the course of June, the steepest price decline in the Raw Steels basket of metals. HDG dropped by around 7%. CRC and plate prices dropped by 5% and 4%, respectively.
Recently, the American Iron and Steel Institute (AISI) reported that U.S. steel production capacity utilization reached 79.4% during the week ending on July 6, up from 77.4% one year ago. Capacity utilization decreased from the prior week by 0.2%.
Production totaled 1.85 million tons for the week, with year-to-date production at 50.46 million net tons based on a capacity utilization of 81.2%. So far this year, production numbers increased by 5.3% compared to the same period last year.
According to the most recently published U.S Census Bureau numbers, May steel imports dropped to a value of $1.9 billion, compared with $2.5 billion in April. In May, imports totaled 1.9 million metric tons compared to 3 million metric tons in April. Imports of blooms, billets and slabs dropped during May, while imports of reinforcing bars, sheets and strip, and heavy structural shapes increased.
Through the first four months of the year, imports totaled 10.4 million metric tons, down from 11.3 million metric tons during the same period of 2018. While imports of hot-rolled and cold-rolled sheets fell, imports of blooms, billets and slabs increased compared with the same period last year.
The U.S. Department of Commerce ruled July 8 in favor of duties on structural steel imports from China and Mexico based on the argument that the imports benefited from state subsidies. Meanwhile, the Department of Commerce made a negative determination with respect to imports of fabricated structural steel from Canada, finding Canadian exporters benefited from countervailable subsidies ranging from 0.12-0.45%.
Chinese HRC, CRC Prices Moving Sideways
Source: MetalMiner data from MetalMiner IndX(™)
Rather than continuing to drop, prices of HRC and CRC increased slightly this month; however, they did not fully recover from the previous month’s price drops. HDG and plate prices, meanwhile, continued to drop into early July.
The Chinese government’s stimulus measures, combined with additional capacity closures, appear to be supporting some prices at this time.
Reuters recently reported Hebei, China’s top steelmaking province, moved up its December 2019 capacity cut targets by two months to the end of this October, according to provincial authorities.
Coal and coke will also see planned reductions of 10 million tons and 3 million tons, respectively. as authorities continue to work on improving air quality. Last year, around 12 million tons of steel capacity, along with some coal and coke capacity, were eliminated in the region and some cities closed steel production.
Regardless, Chinese steel output in aggregate continues to rise in 2019, as demonstrated by the production volume statistics published by TradingEconomics.com. Figures indicate steel production hit a new monthly high in May of around 89.1 million tons, up from the then-monthly high in April of 85 million tons.
With iron ore prices still high and representing around 30% of the price of steel, this may also provide some support to Chinese steel prices.
What This Means for Industrial Buyers
The global steel prices tracked by the index showed mixed performance this month, with U.S. prices showing the greatest weakness.
The U.S. Midwest HRC futures spot price dropped significantly, while the U.S. Midwest HRC futures 3-month price increased, showing some bullishness despite currently falling prices.
China’s HRC price fell by 3.5% to $497/st and steel slab dropped by 1.5% to 490/st, while other Chinese prices in the index increased. Steel billet increased by 2% to $493/mt, while the remaining Chinese prices increased in the range of 0.5% to 1%.