OSHA says the rule will help prevent lung cancer, silicosis, chronic obstructive pulmonary disease, and kidney disease in workers by limiting their exposure to crystalline silica, which can cause all of the above diseases and disorders when inhaled. The final rule is written as two standards, one for construction and one for general industry and maritime.
This pile of white silica sand is now being more tightly regulated by OSHA. Source: Adobe Stock/Coprid.
Construction companies have until June 23, 2017 to comply with most of the new requirements, such as:
Reducing the permissible exposure limit for crystalline silica to 50 micrograms per cubic meter of air, averaged over an eight-hour shift.
Mandating employers to use engineering controls (such as water or ventilation) and provide respiratory protection when controls are not able to limit exposures to the permissible level.
Limiting access to high exposure areas .
Training workers to recognize exposures.
Provide medical exams to highly exposed workers.
OSHA says the new regulations, which replace ones established in 1971, provide greater certainty and ease of compliance to construction employers — including many small employers — by including a table of specified controls they can follow to be in compliance without having to monitor exposures.
As we’ve mentioned before, the new rules are the culmination of 45 years of debate and consideration of a new silica rule. Regulators have sought to strengthen the 1971 since its inception as silica, in its natural sand state, is pretty much everywhere on construction sites.
Our Stainless MMI remained steady at 51 points. However, we currently see some factors that could lift prices in the short term.
Stainless Anti-dumping Case
On March 4, the U.S. Commerce Department launched an anti-dumping and countervailing duty investigation into Chinese imports of stainless steel sheet and strip, for possible illegal subsidies and selling prices at below cost to illegally gain market share. A preliminary determination of injury to U.S producers is scheduled by March 28.
China’s Ministry of Commerce didn’t respond well to the this new case, arguing that simply restoring prices via protectionist means is not the solution. Chinese steel firms have already been impacted by trade cases. Recently the Commerce Department had imposed 266% preliminary duties on imports of cold-rolled steel from China, punishing Chinese steel makers for dumping or selling below cost. In December, China received a dumping margin of 266% on corrosion-resistant steel products.
These tariffs have helped U.S. imports come down this year. That led to lower inventory levels here and have given U.S. mills the ability to rise prices. Steel prices climbed over the past few weeks, and stainless prices could follow. With the threat of anti-dumping lawsuits looming, the volume of imported stainless sheet and strip had already been diminishing, which should be seen in the upcoming months. The lack of imports has already pushed out domestic lead times and could create a supply shortage once service center restocking starts. However, it’s still questionable whether prices will hold just on import tariffs alone. Low international prices will add downside pressure if stainless domestic prices rise, especially since China is the only named party.
Back in 2014 when the ban was implemented, nickel was trading above $15,000 per metric ton. However, Indonesian companies didn’t expected that nickel would be trading today at half that price.
Indonesia Might Ease Export Ban
Because of falling nickel prices, many of the smelters that miners intended to develop have not materialized. Now, the government is going to review its export ban policy as miners struggle and Indonesia´s smelting capacity will not be sufficient by next year amid miners’ unwillingness to develop those costly smelting operations.
The removal of the export ban would add more nickel supply to international markets, possibly driving prices down while demand is weak, especially in the energy sector.
What This Means For Metal Buyers
Stainless prices could experience a short-term bounce on new import tariffs and overall strength across the base metal complex. However, prices will likely struggle to rise longer term while demand remains weak and producers don’t cut production in a big way.
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Commerce calculated a preliminary subsidy rate of 2.96% and 6.21% for mandatory respondents Steamline Industries Limited and Sunrise Stainless Private Limited, Sun Mark Stainless Pvt. Ltd., and Shah Foils Ltd., respectively. All other producers/exporters in India have been assigned a preliminary subsidy rate of 4.55%.
As a result of the preliminary affirmative determination, Commerce will instruct U.S. Customs and Border Protection to require cash deposits based on these preliminary rates. The petitioners for the investigation are Bristol Metals, LLC; Felker Brothers Corporation; Outokumpu Stainless Pipe, Inc.; and Marcegaglia USA Inc.
Aluminum Association Speaks
The U.S. aluminum industry has stepped up efforts to work through multiple channels to address China’s production overcapacity and resulting glut in the global market, Politico reported. The “China Trade Task Force,” a cooperative effort between smelter Century Aluminum and the United Steelworkers union, have been working to slow imports of cheap Chinese product for some time, but now the industry trade group the Aluminum Association is speaking out more forcefully.
The association said in October that it would work with its Chinese counterparts to curtail overproduction there, but now the group is talking more stridently about the imports and Chinese authorities’ inaction to this point
China is “not slowing down their run-up in capacity,” Charles Johnson, the association’s vice president for policy, told Pro Trade in an interview. “We believe we have to get to the underlying issue.” The group is working toward the overall goal having the U.S. negotiate an agreement with Beijing to cut back production for which there is no demand.”
Politico reported that the industry association also persuaded Customs and Border Protection to reverse tariff reclassifications that Chinese producers use to conceal exports of minimally processed primary aluminum in order to avoid a 15% tariff and capture a Chinese value-added tax rebate.
Construction product prices had to, eventually, increase as the US industry has remained strong and demand for new buildings continues to outpace the regular economy. Post-recession construction activity reached a new high in 2015, with office space under construction peaking at 92.8 million square feet, according to professional services and investment management company Jones Lang LaSalle (JLL).
The American Institute of Architects‘ Architecture Billings Index showed positive growth for eight of the 12 months of 2015, as well. With such robust building and spending, why didn’t construction product prices increase sooner?
Like many industries, US construction is a supply side business. With so much rebar, steel, aluminum sheet, copper wire and other product readily available in all locales no critical mass of demand formed during 2015 and prices actually fell as cheap transportation costs — thanks to the low price of oil — conspired with the surplus to deliver record low construction costs. Labor, on the other hand, was a different story as skilled construction laborers enjoyed high demand as fewer of them were available in the robust market — due to retirement and the wealth of projects to work on — and they could demand top dollar.
That’s one of three trends predicted to effect construction later this year, JLL said: The upcoming election’s effect on consumer behavior, the Federal Reserve increasing interest rates and the aforementioned labor shortage of trained construction employees, especially in trade positions.
Other factors might also play a role in pricing. The recent cold-rolled steel tariffs will hit China particularly hard after imports were hit with 256% tariffs. Cold-rolled steel is thought of as a manufacturing product more than for its use in construction, but it is widely used for cold-rolled structures such as frames and joists.
With all of this being said, the overall commodity picture is still quite bleak and — as oil prices remain weak and most metals continue their bear runs — there is little to suggest that this is a true market bottom. Construction products could have much further to fall before anything close to market equilibrium is reached. Buyers should remain cautious and continue to watch regional prices of products such as rebar and H-beam steel.
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It was a third flat month in a row for the Automotive MMI as strong sales in the US and surprisingly resilient ones in China paced end-user markets, but still couldn’t increase the prices of automotive metals as oversupply still plagues global markets.
Here in the US, Ford Motor Co. sold 20.2% more new vehicles in February than a year earlier. Fiat Chrysler Automobiles posted a 12% gain, while General Motors sales fell 1.5% as it cut back on fleet sales.
Toyota Motor Corp. sales rose 4.1% on strong sales of its RAV4 compact SUV (up 16%), the 4Runner midsize SUV (up 32%) and the Tacoma midsize pickup truck (up 14.5%). The Lexus luxury brand was up 1%.
Nissan Group posted a 10.5% increase, fueled by a 12.9% improvement that more than offset an 11% decline at the Infiniti luxury brand. American Honda sales jumped 12.8% as its top selling Civic and Accord rose 32% and 19%, respectively.
Chinese Sales Resilient
In China, sales in the world’s biggest auto market rose 7.7% in January, as demand was driven by a lowered tax for small engines.
Sales of passenger and commercial vehicles jumped to 2.5 million units in China in January, according to data released by country’s Association of Automobile Manufacturers. Passenger vehicle sales rose 9.3% to 2.23 million units, while commercial vehicle sales declined 3.4% to 303,600 units, the body said.
Oversupply continues to be the culprit for flat automotive metal prices as products such as London Metal Exchange copper and hot-dipped galvanized steel still have large stockpiles available in major markets. The US scrap steel is markedly bearish even by the low standards of the overall sluggish commodity market.
There is also growing concern that end-product demand from large consumer markets such as the US and China cannot last at current rates. While finance costs in the US are expected to stay low, many are concerned that automakers have overextended themselves by investing in aluminum and steel production facilities and, if demand does fall in 2016, automakers will find themselves shuttering new production or borrowing to meet construction costs.
In China, growth has been fueled by the burgeoning used car market there, one whose sales do not trickle down to metal suppliers.
Continue to monitor automotive metal prices and be cautious with forward purchases as there’s still not any real indication that this is a flat bottom or just a plateau momentarily pausing a larger fall.
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A recent report by professional services and investment management company Jones Lang LaSalle (JLL) predicts U.S. construction growth will outpace the regular economy, partially due to activity in cities such as Atlanta, Austin, Texas; Chicago, and Charlotte, N.C. However, rising labor costs are still a concern.
Post-recession construction activity was high in 2015, with office space under construction peaking at 92.8 million square feet. Construction costs are up in primary markets due to rising wages, while materials prices remain relatively low in the short term.
U.S. Construction activity is expected to increase in 2016 even above the healthy market levels of 2015. Image: Jeff Yoders.
Construction will continue its growth trajectory, but it will slow, JLL says, along with economic growth nationwide. Three trends are leading to a softer 2016: The upcoming election’s effect on consumer behavior, the Federal Reserve increasing interest rates and a labor shortage of trained construction employees, especially in trade positions. However, demand from downstream markets will bolster the industry and construction profit margins should continue to rise, keeping construction growing at a faster rate than the overall economy.
Finally, steel companies’ shipments were impacted over the past few months as service centers focused on destocking and now that inventory has finally come down, service centers will finally need to start restocking activity. This combination of factors left US mills in a sweet spot in 2016 to increase prices.
Domestic prices might continue to rise in the coming weeks. After the huge price slump in 2016, domestic prices deserve a bounce in Q1. However, mills won’t likely succeed in raising prices for too long.
The world remains oversupplied and demand is weak. Due to the political backlash from job losses spurred by mill closures, China wants to keep its mills running. With the ongoing Chinese yuan devaluation, Beijing has made its intention clear. China wants its exports even more competitive in global markets, especially in the steel industry as China continues to seek a home for its excess steel.
If domestic prices stayed higher, that would attract more imports, resulting in more material coming into the US and depressing prices as a result. In addition, it’s hard to imagine steel prices bucking the falling trend across the industrial metal sector. It will be hard for US mills to convince buyers to pay higher prices while commodities nearly universally fall.
Falling Raw Material Costs
Another important factor that will keep a lid on steel prices is the slump in input costs. In January, oil prices fell below $30/barrel. Falling energy prices will cause companies in the energy sector to reserve capital to keep on their balance sheets, rather than spending money on new exploration. This will continue to hurt steel demand from the energy sector. At the same time, while raw material prices keep falling, it will be difficult for US steel mills to justify their price increases for long.
And this month’s Global Precious Metals MMI was no exception – after hitting yet another all-time low of 68 last month, the sub-index bounced back up to 70 for our January reading.
As for the dead-cat bounce, the Aluminum MMI had what looked like one, my colleague Raul writes:
“Aluminum has declined more than 30% on the year-to-date. A 3% increase after such a price slump means nothing. Indeed, aluminum producers should be worried that prices are not able to make a decent rally from these low levels. That only means that investors are only interested in selling, not buying.”
“Although steel prices took a break from their year-long fall in December, there are still many factors weighing down prices. It seems too early to bet on a recovery in prices. For corrosion-resistant steel buyers, the effects of the new import duties are certainly something to watch.”
And even the Copper MMI had a tiny one too, (stay tuned for that story, coming next week).
So, alongside the baby-sized Fed interest rate hike came a bit of a bounce for our precious metals price index. Welcome to the party.
The Platinum/Palladium Story
Putting aside gold and silver for now (global prices for which, on balance, fell for silver but rose for gold on the MetalMiner IndX), let’s focus again on the more industrial of the precious – the two PGMs we track.
As far as bigger end-use drivers go, the automotive markets have made most of the headlines lately. In China, car sales rose to the highest level ever, increasing in December by more than 23% from November 2014. That is the second consecutive month in which China’s passenger car sales grew by double digits. Here in the US, data from Ward’s Automotive Group shows 1.63 million vehicles were sold in December last year, making this the strongest month of 2015. In all of 2015, sales totaled 17.38 million, which exceeds the previous record high from 2000.
Producers like Johnson Matthey may have reason to look forward to 2016.
Low gas prices, an improving labor market and low interest rates, “coupled with a solid U.S. economy, could also make 2016 a year of robust vehicle sales,” noted Commerzbank analysts recently. “This should boost platinum and palladium, which are used in auto catalysts; palladium in particular should profit because the U.S. market is gasoline-dominated.”
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Is this upward move something to be worried about? Or excited about? We don’t think so.
As soon as prices rise a tick, people try to find the fundamental reason for that price increase. Sometimes they can even, somehow, make the case that the outlook is set to improve. But in the case of aluminum, nothing really improved in December.
First, aluminum has declined more than 30% on the year-to-date. A 3% increase after such a price slump means nothing. Indeed, aluminum producers should be worried that prices are not able to make a decent rally from these low levels. That only means that investors are only interested in selling, not buying.
Supply and Demand
Fundamentally, we didn’t see anything this month to make us more bullish on aluminum. The State Reserves Bureau in China announced intentions to buy a 1 million tons, or possibly twice as much, to help smelters awash in the metal. Some might take this as bullish news, but we doubt that can make the outlook any brighter. To us, this purchase would only represent a change in ownership of existing unsold stock, irrelevant to the future global market balance.
There is no shortage of metal and aluminum continues to flood out of China. December marks another month without significant production cuts. There have been reports that Chinese smelters plan to reduce some of the excess capacity but it seems like markets would like to see some real action on this front. In China, the most smelters have done involves taking smaller capacity offline for “maintenance.”
The slight increase in aluminum prices was mostly because of a weaker dollar in December which also helped most industrial metals hold their value during the month. China’s slowdown is the long-term price driver and we recently saw Chinese manufacturing numbers disappoint, adding more worries about overall weak demand. That alone, will likely keep a lid on aluminum prices.
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While it’s certainly progress after a year of falling prices, it’s still important to temper your expectations when it comes to steel.
In December, we had big anti-dumping news. The Department of Commerce announced its preliminary determinations in the investigations of imports of corrosion-resistant steel products from China, India, Italy, and Korea, and Taiwan.
China received a preliminary dumping margin of 255.8%. Which could considerably reduce the amount of corrosion-resistant steel imported from China. The size of the duty will likely make these exports unattractive to Chinese producers. Meanwhile, the imports from South Korea, India, Italy and Taiwan all were levied less than 7% duties, which doesn’t seem as if it will be enough to stop these countries from shipping metric tons of automotive and appliance steel to the US going forward.
Finally, Taiwan escaped import duties with preliminary dumping margins of 0%. The effect in corrosion-resistant steels like hot-dipped galvanized is yet unknown and, therefore, something worth monitoring.
Micro Aggressions, Macro Problems
But imports are not the only problem that US mills are facing. Macro factors keep putting pressure on steel prices. In December, oil prices fell to fresh lows, trading near $35 per barrel. Falling oil prices bring down metal production costs and also adds to the bearish sentiment in commodity markets.
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Low oil prices have led to an energy sector collapse and domestic steel demand from this sector has fallen significantly. This helps explain the decline in US steel production and capacity utilization. Domestic mills have idled the most capacity since the financial crisis, operating at just 61% in December. Another important consequence of the energy collapse is that inventories held by steel companies are taking a long time to deplete in the face of falling demand, exacerbating the slump in consumption.
Months on hand (MOH) inventories increased to three in December because of the slow shipping rate. Still, many mills are optimistic that they will finish restocking this quarter.
What This Means For Metal Buyers
Although steel prices took a break from their year-long fall in December, there are still many factors weighing down prices. It seems too early to bet on a recovery in prices. For corrosion-resistant steel buyers, the effects of the new import duties is certainly something to watch.