Articles in Category: Ferrous Metals

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This morning in metals news, Big Three automaker Ford Motor Co. has expressed unease about the ramifications of a hard Brexit, Canada reverses a duty on some forms of steel from Mexico and India is considering pushing back a deadline after which more stringent steel import rules were set to go into effect.

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Ford and a Hard Brexit

With a Brexit deadline fast approaching in late March, it’s not surprising to see some businesses pondering the economic impact of a no-deal Brexit.

Ford Motor Co., for example, recently said if the U.K. is not able to secure a deal as it exits the E.U., the result would be “catastrophic,” the BBC reported.

Ford operates three plants in the U.K.: the Dagenham Engine Plant, the Halewood Transmission Plant, the Bridgend Engine Plant and the Dunton Technical Centre, employing a total of approximately 13,000 workers.

Canada Reverses Steel Duties on Forms of Mexican Steel

According to the CBC, Canada has removed 25% import tariffs on two forms of steel from Mexico.

The reversal was effective as of Feb. 2, according to the report, and applies to Mexican energy tubular products and wire rod shipments.

India Mulls Deadline Pushback

As India aims to push domestic steel consumers to consume domestic steel, Reuters is reporting that a deadline for more stringent steel import rules aimed at automakers could be pushed back.

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The government is considering delaying the Feb. 17 deadline by four months, according to the report.

Some call them safeguards, some call them protectionist barriers, and some love them and some hate them.

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Few measures divide like import tariffs.

We have seen it in the U.S. While Europe would claim its own measures are a reaction to the impact of imports following the U.S. Section 232 action, the reality is domestic European producers — led by their trade group, the European Steel Association (EUROFER) — are very much in favor of the European Union’s decision to put in place permanent safeguard measures on steel imports (in place of the provisional ones which have been applied since July 2018).

The new measures differ from the provisional arrangements in part because they were arrived at after careful monitoring of imports in the intervening period. As such, they are so are more targeted, at some 26 product categories, Pan European Networks reports in its publication Government Europa. The tariff of 25% applies to imports that exceed a certain threshold and are designed to ensure sufficient supply is available to consumers without allowing the market to be swamped by excess material, severely depressing prices.

A report in Steel Times quotes Eurofer saying imports have surged by 12% last year, making the need for an effective defense mechanism essential.

Axel Eggert, director-general of EUROFER, is quoted as saying “For every three tonnes of steel blocked by the US’ section 232 tariffs, two tonnes have been shipped to the open EU market.”

The measures do appear to partially reflect consumers concerns, EUROFER says that the final measures include an immediate “relaxation,” increasing the size of the quota by 5% (calculated on the base years of 2015-2017), with a further 5% relaxation in July and another 5% in July 2020, subject to review. Steel demand in 2019 is expected to increase by just 1%.

But, not surprisingly, not everyone is in favor of the measures.

European auto manufacturers association ACEA has called the measures protectionist. It has said that steel exports to the United States have only dropped slightly, and so little extra steel has been diverted to Europe. EUROFER puts the figure at an increase from 20% import penetration historically to 25% import penetration during the monitored period last year – hardly the “significant volumes” touted by UK Steel Director General Gareth Stace.

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If the U.S. reaches a sufficiently attractive trade deal that it decides to remove the Section 232 measures – unlikely, but a possibility – to what extent will Europe remove its new measures?

We will see. In an increasingly protectionist world, barriers are quick to be adopted and slow to be removed.

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This morning in metals news, U.S. steel mills produced at a capacity utilization rate of 80.6% for the year through Feb. 9, U.S. steel mill shipments rose 4.8% in 2018 on a year-over-year basis and a Peruvian plant used to produce copper will be partially suspended for the next 3-5 days.

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Capacity Rate Maintains Level Above 80%

U.S. raw steel production for the year through Feb. 9 reached 10.9 million tons, according to the American Iron and Steel Institute (AISI), up 9.3% from the 9.9 million tons produced during the same period in 2018.

For the aforementioned period this year, U.S. steel mills produced at a capacity utilization rate of 80.6%, up from 75.7% for the same period in 2018.

For the week ending Feb. 9, production hit 1.9 million tons at a capacity utilization rate of 81.5%.

December Steel Shipments Up 6.5%

According to another AISI report, U.S. steel mills in December shipped 7.8 million net tons, marking a 0.8% increase from the previous month and a 6.5% increase year over year.

Shipments for the full year hit 95.3 million net tons, up 4.8% compared with 2017 shipments.

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Southern Copper Corp. Announces Suspension of Peru Plant

According to a Reuters report, Southern Copper Corp. announced the partial suspension of a plant in Peru used to produce copper.

The plant will not restart for another 3-5 days, according to the report, as the miner works on tailings and railway infrastructure.

The Stainless Steel Monthly Metals Index (MMI) jumped seven points this month to 68, translating into an 11.5% increase, the largest monthly increase registered by the MMI since the 10.95% increase in September 2017.

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LME Nickel

Source: MetalMiner analysis of FastMarkets

LME nickel prices surged in early in 2019 after a seven-month downward trend and gained momentum during the second half of January and into early February.

Nickel hit a resistance point at around $13,000/mt when daily volume turned negative again. This price point is significant; once the price broke through this psychological price point last year, $13,000/mt became the support price until strong downward pressure hit prices in early September 2018.

Domestic Stainless Steel Market

Source: MetalMiner data from MetalMiner IndX(™)

Weakness in the index came from falling surcharges in the basket of tracked stainless steel metals for both 304/304L-Coil and 316/316L-Coil. Why did surcharges fall? The iron ore elemental value fell more than the rising nickel prices.

What This Means for Industrial Buyers

This month the MetalMiner IndX trended upward due to higher global nickel prices, despite falling surcharges.

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Actual Stainless Steel Prices and Trends

Most of the metals tracked in the Stainless Steel MMI’s basket increased this month; however,  nickel drove the trend with double-digit price increases tracked for all three prices in the index.

The LME primary three-month price increased 16.08%. Chinese prices increased 14.76%, and Indian prices increased 17.39%.

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The stainless steel 316 CR coil price for China increased 6.57%. U.S. 316 and 304 Allegheny Ludlum surcharges decreased this month by 1.92% and 0.33%, respectively.

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This morning in metals news, U.S. Steel announced the restart of construction on an electric arc furnace (EAF) facility, a new £35 million research network aims to make the U.K.’s steel sector carbon-neutral and the latest on the Thyssenkrupp-Tata joint venture.

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An EAF Restart

U.S. Steel announced Monday that it would restart construction on an EAF facility in Fairfield, Alabama.

Per the steelmaker’s announcement, completion of the construction is expected to cost $215 million and will add about 150 jobs.

Research Network Aims for Carbon-Neutral U.K. Steel Sector

A new research network aims to make the U.K.’s steel sector carbon-neutral by 2040, according to the BBC.

Per the report, Swansea, Sheffield and Warwick universities will work together in a £35 million project in an effort toward the carbon-neutral goal.

A Warning for Thyssenkrupp-Tata

As the proposed Thyssenkrupp-Tata Steel joint venture is analyzed by Europe’s competition authorities, one report offers not-so-positive news for the firms.

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According to Reuters, the companies will be warned this week that their joint venture — which would create Europe’s second-largest steelmaker — could be vetoed by Europe’s antitrust regulators unless they offer concessions.

[Editor’s note: This is the third and final part of our series on tariffs. In case you missed them, read Part 1 and Part 2.]

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2002 Bush Section 201 Steel Tariffs

All of this background analysis brings us to the heart of the current debate: are the tariffs “bad” for the economy and manufacturing?

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The only trade study published on tariffs that measures actual impact — as opposed to using models to support claims — sheds some light.

As previously reported by MetalMiner, a 2003 study used primary research with 419 steel-consuming companies, as opposed to econometric modeling.  At the time, this represented fully 22% of all steel purchased by companies in the U.S. That study concluded “overall employment of steel-consuming industries generally fell or remained flat in 2002-03” compared with the previous two years, but that productivity and wages increased over the three-year period.

Moreover, the study noted a $30.4 million GDP loss — not nothing, but insignificant against the total.

Perhaps most ironically among steel-consuming companies, “overall sales and profits increased, while capital investment fell, for most steel-consuming industries in 2002-03 – the period after the implementation of the safeguard measures.”

Not all results were positive.

Half of industry respondents reported higher steel prices and 43% said that they could not pass those costs onto their customers. Some reported that producers broke contracts.

Finally, 32% of respondents saw higher lead times, while 46% of respondents noted difficulties in obtaining materials.

Which Brings Us Back to the ‘Model’ Studies…

The use of models remains inherently flawed because most models require the use of forward-looking data and assumptions.

The Coalition for a Prosperous America conducted a trade study that generated different results from the Koch study, primarily by taking into consideration actual baseline GDP and total employment data, and CBO forecasts for GDP and employment (the CBO is considered by policy wonks to be the most neutral of all economic reporting government entities).

That study also factored in industry plans and announcements from the steel industry and used the Regional Economic Modeling Inc’s (REMI) model, which is used widely by think tanks, state and local governments, etc.

Other Government Research Debunks Broader Negative Tariff Impact Claims

A Congressional Research Service (CRS) analysis points to negative impacts from the tariffs on steel and aluminum. That analysis, however, suggests a much narrower range of impacts from higher prices of steel and aluminum to lower imports of those same commodities.

The study also claims input costs will rise for downstream manufacturers. Certainly, prices have risen with the imposition of the tariffs. However, nobody has conducted research to determine if manufacturers could pass down costs and/or if their profits were lower, higher or about the same as prior to the tariffs.

In other words, have the higher prices actually impacted GDP and employment data?

The CRS study suggests the two biggest variables to consider relates to downstream prices and availability of imports, which will depend upon the range of product and country exclusions and the degree to which other countries retaliate.

Regardless, the ISM Report on Manufacturing released in December, which also relies upon primary research with downstream manufacturers, reported: “Despite U.S. tariffs on foreign steel and aluminum, prices for those key materials have declined, executives said.”

Those price declines mirror current commodity market conditions in which the overall bull market appears to have run out of steam. MetalMiner’s long-term outlook for both commodities and industrial metals shifted from bullish to bearish back in December 2018 and January 2019, respectively.

It’s easy to glob onto the mainstream trade war discourse and assume the widely circulated studies must serve as the whole truth. The truth, however, requires the media and the public to acknowledge real anti-tariff media bias, the actual overcapacity conditions that led to the imposition of Section 232 in the first place, and the impacts measured post-tariff as reported by those that actually, as opposed to theoretically, felt the impact (e.g. downstream manufacturing organizations).

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The “war” on trade requires all of us to dig deeper and perhaps seek to learn what we don’t know.

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Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner:

[Editor’s Note: This is the second part of our three-part series on how tariff impacts — positive or negative — are perceived, the history of Section 232, and China’s role in the global steel marketplace (and how that has affected the U.S.). In case you missed it, Part 1 can be read here.]

The Bush tariffs of 2002 came as a result of a Section 201, as opposed to a Section 232 investigation. The Trade Act of 1974 covers Section 201 investigations, whereas Section 232 derives its authority as part of the Trade Expansion Act of 1962, based on national security grounds.

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MetalMiner conducted an analysis of every single Section 232 case initiated since the passage of the Trade Expansion Act of 1962. The results suggest market observers need to dig into the details further to see why various presidents have taken action on imports of particular commodities, as well as what types of action they have taken.

Section 232 has been invoked 26 times.

Source: MetalMiner analysis of ITC data

Of the seven times in which a primary metal industry initiated a Section 232 investigation, in only one case — this most recent one — did the president determine action was necessary to adjust imports. However, in one of the cases, President Ronald Reagan agreed to update the National Defense Stockpile.

Of the seven times in which a derivative metal industry (nuts, bolts, bearings, parts) initiated a Section 232 investigation, in no cases did the president conclude action was necessary to adjust imports. However, in one case, for metal cutting and metal forming machine tools, Reagan deferred a decision on Section 232 and instead sought voluntary agreements with foreign suppliers; indeed, one went into effect for a period of five years and was extended for two additional years.

In all other cases, the only industry that received Section 232 relief has been petroleum or oil. Now that the U.S. has achieved energy independence, MetalMiner suspects the U.S. will not see a case made under Section 232 for this commodity (so long as the U.S. remains energy independent).

The U.S., however, is not steel independent, meaning the U.S. does require some level of imports to satisfy domestic demand.

Historical analysis suggests the U.S. has filed about the same number of anti-dumping cases today as it did in the late 1950s-1970s. The difference today, though, comes down to the imposition of duties; far more are implemented today than during that earlier time period.

Logically, as tariffs have steadily declined, imports have grown, while today the number of products targeted for anti-dumping measures has declined since the 1980s.

What Has Changed and Why Should Anyone Care?

In a word: China.

In 1960, China produced a total of 18.5 million tons of steel, whereas the U.S. produced about 6 million tons. Incidentally, the price of a ton of steel in 1962 was $144/ton — or $1,180/ton in today’s dollars!

It wasn’t until 1996 when China first produced 100 million metric tons of steel. And the real growth happened after China ascended to the WTO in 2001, growing steel production from 128.5 million metric tons in 2000 to nearly 495 million metric tons in 2007.

Source: MetalMiner analysis of World Steel Association data

Obviously, as China’s economy began to grow, steel demand also grew. Any market observer would also expect production to increase to support economic growth.

Perhaps the more interesting statistic to examine is production against demand. By looking at the production figures above, one might assume that demand also steadily increased since 2007.

But did it?

Source: MetalMiner analysis of World Steel Association data

In a word: no.

China’s demand peaked in 2013 at 772 million tons, declined and then reached 767 million tons in 2017, whereas China produced 779 million tons in 2013 (a little higher than demand). But in 2017 China produced 831.7 million tons for a surplus of 64.7 million tons.

2018 statistics show China produced more steel than any year in its history — 923 million metric tons, according to Reuters, against a demand projection that is at best flat to slightly up from 2017, based on a MetalMiner analysis. Assuming demand of 780 million tons, that would suggest a surplus of over 140 million metric tons.

U.S. demand and production, in contrast, appears paltry.

It should come as no surprise that the Trump administration has taken significant steps to shore up the domestic industry against Chinese imports.

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The only study that takes into consideration these factors, such as actual demand and actual supply, involved the original Department of Commerce studies on Section 232.

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This morning in metals news, ArcelorMittal  on steel demand in China (and elsewhere), copper lost ground after several upward sessions in a row and Mexico’s steel industry is not happy with the government’s decision to not renew steel safeguards protecting against steel from countries with which Mexico does not have a trade agreement.

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Chinese Steel Demand

ArcelorMittal expects the steel sector to come back down a bit after a run of strong prices, according to a Bloomberg report.

Unsurprisingly, much of that expected decline has to do with softening demand in China. Per the report, the firm expects steel demand growth to slow around the world,  and contract in China for the first time since 2015.

Copper Falls

After three straight upward sessions for London copper, the price fell back Thursday, Reuters reported.

LME copper fell 0.2% Thursday, according to the report. Meanwhile, Chinese markets remain closed over the Lunar New Year holiday break.

Mexico’s Steel Safeguards

According to an S&P Global Platts report, Mexican industry groups are not happy with the government’s decision to let a 15% steel safeguard lapse.

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The safeguard applied to imports from countries with which Mexico does not have a trade agreement, according to the report.

The Raw Steels Monthly Metals Index (MMI) posted a one-point increase this month, moving to an MMI reading of 80.

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Source: MetalMiner data from MetalMiner IndX(™)

As reported last month, steel prices continued to fall from their historically high levels reached back in the spring of 2018.

CRC and HDG prices are back to June 2016 levels, while HRC is still slightly higher than the price point hit following the spring 2016 raw steel price surge.

Source: MetalMiner data from MetalMiner IndX(™)

Steel plate, however, bucked the trend with a price gain into February. It remains to be seen if it will break the previous price resistance point hit earlier in the month, a historical high of $1,004/st for the MetalMiner Index.

While raw materials, such as coking coal and iron ore, typically trade in the same pattern, in January they traded differently.

Coking coal prices moved sideways, while iron ore prices increased sharply this month on the back of a 10% production cut announced by Brazilian iron ore miner Vale SA.

Moreover, iron ore prices may continue to rise if the Chinese government prohibits expansion of iron ore and steel projects in 2019.

China continues to struggle with industrial pollution in the top steelmaking city of Tangshan and in the industrial province of Henan.

What This Means for Industrial Buyers

Plate prices may be at or close to their peak.

Meanwhile, buying organizations will want to pay close attention to any price changes, particularly to the upside (in fact prices have notched up for HRC, CRC and HDG in the opening days of February) to determine if the current downtrend shifts to a sideways trend.

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Actual Raw Steel Prices and Trends

Chinese coking coal prices continued to climb this month, increasing another 15.5% on top of last month’s 23% increase, ending at $315.18/mt, which was still lower than October’s $348/mt.

Korean standard scrap steel also increased in price again this month, adding a 12% increase on top of last month’s 6% increase, ending the month at $175.33, also recovering and still lower than the recent October high of $193.69/mt.

Chinese steel slab increased 7% to $566/mt.

U.S. shredded scrap fell 11% to $314/st.