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
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
President-elect Donald Trump named Robert Lighthizer, a former trade official in the Reagan administration and a harsh critic of China’s trade practices, to be his U.S. Trade Representative today, the chief trade negotiator responsible for better deals aimed at reducing U.S. trade deficits.
Trump, who promised during his presidential campaign to renegotiate international trade deals like NAFTA and punish companies that ship work overseas, said in announcing his choice that Lighthizer would help “fight for good trade deals that put the American worker first.”
Lighthizer is a former deputy U.S. trade representative under former Republican President Ronald Reagan who helped to stem the tide of imports from Japan in the 1980s with threats of quotas and punitive tariffs. His return to the agency follows nearly three decades as a lawyer representing U.S. steelmakers and other companies in anti-dumping and anti-subsidy cases.
“The American Iron and Steel Institute welcomes the president-elect’s nomination of Robert Lighthizer as the U.S. Trade Representative,” said Thomas J. Gibson, president and CEO of the AISI. “Bob’s nomination sends a strong signal regarding the incoming administration’s commitment to address the injury that the steel industry has suffered from unfairly traded imports.”
Gibson went on to say Bob Lighthizer is eminently qualified to serve in this position and his dedication not only to the steel industry — but to the manufacturing sector as a whole — will enable him to have a strong and prominent role in addressing the critical issues that face our companies and workers. He also said AISI looks forward to working with Lighthizer and the new administration on trade enforcement issues in the new year.
Anti-dumping actions were once again a hot topic this year. Back in February India imposed a minimum import price for nearly all foreign steel entering the country. This was only one of many anti-dumping actions taken this year with both the U.S. and European Union tightening tariffs this year. — Jeff Yoders, editor
It’s a problem that’s dogged almost all the major economies as well as developing nations – the dilemma of steel cheap imports. Steelmakers in the U.S. have, in the past, not only cried foul at the World Trade Organization but also imposed steep anti-dumping duties on cheap imports from China, Korea and India making their way into the U.S. market, thus further depriving an already-stressed out market.
A few days ago, as reported by MetalMiner, seven EU nations asked the European Commission to intervene to stop cheap imports of steel, particularly from China and Russia.
India has imposed a minimum import price on most steel products. Source Adobe Stock/Jovanning.
In India, a market where steel consumption continues to grow bucking global trends, the situation is no different. So, finally giving in to the loud protests by domestic steel companies against cheap imports, the Indian government recently imposed a minimum import price (MIP) ranging from $341 to $752 per metric ton on 173 steel products as a “temporary” measure.
Minimum Import Prices
The MIP conditions are valid for six months from the date of the notification or until further orders, whichever is earlier. The MIP, though, will not be applicable on imports under the advance authorization scheme and high-grade pipes used for pipeline transportation systems in the petroleum and natural gas industry are exempt.
The move seems to have gone down well with a majority of the steel trade bodies and a large section of India’s steel industry, but some have called it simply a band-aid for the hemorrhaging steel sector.
India’s domestic steel production between April-January 2016 dropped 1.8 % to 75.66 million mt, while imports rose 24.1% to 9.3 mmt. Consumption grew 4.2% to 65.91 mmt. For domestic steelmakers, apart from the MIP, the import duty has also been raised to 10% for flat products and 7.5% for long products.
The rationale behind the MIP was explained by Steel Secretary Aruna Sundararajan, in an interview with The Economic Times. She said the move would give India’s steel industry much-needed breathing space to get healthy.
Over the last couple of years, India had seen a spurt in steel imports, leading to a decline in prices. According to the Steel Secretary, India had over 400 mmt of surplus steel. All that surplus has put the domestic steel industry into distress.
While imposing the MIP, the Indian government also took care to ensure that downstream users were not affected. That’s why certain categories of steel — required by end-user industries — not manufactured in India, were exempted.
The government’s decision to impose MIP will, however, reduce the benefit of lower commodity prices for automobile companies, according to many experts. Also, according to the engineering goods exporters’ body, EEPC India, the MIP will lead to further erosion in engineering exports. It has thus sought from the government a compensatory mechanism to make up for the increased raw material price (about 10%) for the distressed exporters, mostly in the small and medium-sized enterprises segments.
The Indian government has dubbed the MIP an “emergency provision.” In the next six months, it will be looking at anti-dumping duties and moving toward more stable, longer-term measures. It will also be keeping a close watch on imports after the MIP, as well as the response of domestic steel companies and consumers.
Changes in the outlook for copper’s supply-demand balances that drove a recent rally in prices support a more “bullish” environment for the metal at least until mid-2017, Goldman Sachs said in note to investors last week.
“Although it is tempting to blame this on speculative positioning, the materially stronger fundamental developments that contributed to this surge in speculative interest are likely to underpin a more bullish environment for copper,” Goldman analysts wrote in a note dated Sunday. It’s a flip-flop for Goldman which was previously a copper super-bear.
Steel Imports in November
Based on the Commerce Department’s most recent Steel Import Monitoring and Analysis (SIMA) data, the American Iron and Steel Institute (AISI) reported recently that steel import permit applications for the month of November totaled 2,862,000 net tons. This was a 1.2% decrease from the 2,895,000 permit tons recorded in October and a 5.5% increase from the October final imports total of 2,713,000 nt.
Import permit tonnage for finished steel in November was 2,274,000, up 0.8% from the final imports total of 2,256,000 in October. For the first eleven months of 2016 (including November SIMA permits and October final data), total and finished steel imports were 30,379,000 nt and 24,322,000 nt, down 16.5% and 17.3%, respectively, from the same period in 2015. The estimated finished steel import market share in November was 27% and is 26% on the year-to-date.
However, especially for some steel products like hot-rolled coil (HRC), imports really aren’t a problem anymore. Why is this? It’s not because the already stiff anti-dumping/countervaling duties in place, nor because Donald Trump will take more aggressive action against steel imports. It’s simply because imports are not attractive to steel buyers anymore.
U.S. steel imports fall in October. Source: US Census Bureau.
In October, The U.S. imported 2.4 million metric tons of steel, down 11% from the same period last year. Steel imports fell on a monthly basis for three consecutive months after they hit a one-year high in July.
Hot-rolled coil prices in the U.S. (blue) vs China (purple) Source: MetalMiner IndX.
The price spread between China and U.S. hot-rolled coil has come down to less than $30 per ton. Prices in China set the floor for international prices. As the spread between U.S. and international steel prices narrowed so much in some steel product categories, like HRC, that there isn’t much incentive for domestic steel buyers to look for import offers. According to preliminary data released by the U.S. Census Bureau, HRC imports fell by 37% in October from a year earlier.
Cold Rolled Imports Still Hold
The international price spread for cold-rolled products has also come down significantly, but the gap is still enough to justify importing some material.
Cold-rolled coil prices in the U.S. vs China prices. Source: MetalMiner IndX.
In October, CRC imports rose 33% compared to last year, with a substantial increase in imports coming from Vietnam. Some steel producers in the U.S. recently filed a trade case alleging that CRC is being transshipped.
What This Mean For Metal Buyers
Fewer imports provide more pricing power to domestic steel producers in an otherwise well-supplied industry.
As long as international steel prices continue to climb, domestic mills will have it easy and be able to justify any price hike, particularly in the case of HRC, as imports at these levels are not attractive anymore.
The Wall Street Journal reports that the stockpile is believed to be related to the product of Chinese aluminum producer China Zhongwang.
Zhongwang is a state-supported enterprise that has received large benefits and financing from the government of China. The company also has a long history of circumventing and evading duties in trade cases. Read more
A massive stockpile of 500,000 metric tons of aluminum has been trucked out of the Mexican city of San José Iturbide and shipped to a remote port in Vietnam, according to shipping records and people familiar with the matter.
The Wall Street Journal reports that the stockpile is believed to be related to or entirely the product of Chinese aluminum producer China Zhongwang. As a result of moving the massive stockpile, Vietnam has become a major importer of aluminum extrusions this year.
Preliminary Steel Exports Down
Based on preliminary Census Bureau data, the American Iron and Steel Institute reported that the U.S. imported a total of 2,682,000 net tons of steel in October, including 2,225,000 nt of finished steel (down 3.4% and up 4.7%, respectively, vs. September final data).
On the year-to-date (YTD), through 10 months of 2016, total and finished steel imports are 27,486,000 and 22,017,000 nt, down 19% and 19.8%, respectively, vs. the same period in 2015. Annualized total and finished steel imports in 2016 would be 33.0 and 26.4 million nt, down 15% and 16.1%, respectively, vs. 2015. Finished steel import market share was an estimated 26% in October and is estimated at 25% on the year.
For the purpose of anti-dumping investigations, dumping occurs when a foreign company sells a product in the U.S. at less than its fair value.
In the Brazil investigation. Commerce found dumping has occurred by Companhia Siderurgica Nacional and Usinas Siderurgicas de Minas Gerais SA, at a final dumping margin of 74.52%. The dumping margin for the mandatory respondents was based on adverse facts available (AFA) they did not cooperate in the investigation. Commerce established a final dumping margin of 74.52% for all other producers/exporters in Brazil.
In the South Africa investigation, commerce found dumping occurred by Evraz Highveld Steel and Vanadium Corp., at a final margin of 94.14%. They also did not cooperate in the investigation. Commerce calculated a dumping margin of 87.72% for all other producers/exporters in South Africa.
In the Turkey investigation, Commerce found dumping occurred by Ereğli Demir ve Çelik Fabrikalari T.A.Ş., at a dumping margin of 50%. It, too, did not cooperate in the investigation. Commerce calculated a final dumping margin of 42.02% for all other producers/exporters in Turkey.
A countervailable subsidy is financial assistance from foreign governments that benefits the production of goods from foreign companies and is limited to specific enterprises or industries, or is contingent either upon export performance or upon the use of domestic goods over imported goods.
Commerce calculated preliminary subsidy rates of 2.76% and 3.66% for mandatory respondents Norma (India) Ltd., its three cross-owned affiliates, and RN Gupta & Company Limited, respectively. Commerce established a preliminary subsidy rate of 3.21% for all other producers/exporters in India.
Industry Groups Still Challenging EPA Mercury Rule
The U.S. Environmental Protection Agency‘s additional, court-ordered justification of its rule limiting mercury and other toxic emissions from coal-fired power plants fails to show how the rule’s benefits outweigh its compliance costs, states and industry groups fighting the revamped rule told the D.C. Circuit on Friday.