Articles on: Metal Prices

The latest in a string of anti dumping cases brought against China since the economic downturn has resulted in preliminary duties of 11 to 13% being applied on seamless steel pipe from China according to an article in Reuters. The latest case concerns seamless carbon and alloy pipe of 16 inches or less in outside diameter used in industrial piping systems to carry water, steam, petrochemicals, chemicals, oil products, natural gas and other liquids and gasses.

Quoting Commerce Department figures, the Washington Post stated that the volume of steel pipes imported from China more than tripled between 2006 and 2008, rising from $632 million to $2.6 billion, according to the Commerce Department. The China Daily defended the country’s steel makers by saying China was a large importer of steel before 2005, but massive investments in the steel industry have resulted in an increase in capacity. In 2008, China’s exports of steel pipes reached $3.2 billion, accounting for over half of the total US imports of steel pipes. But from January to November 2009, China’s exports to the US made up for merely 14% of US total imports. And, according to US figures, US imports of steel pipe shrank by 50% during the first 10 months of 2009, no doubt partly due to earlier calls from the domestic steel industry for anti dumping measures to be brought against Chinese producers.

Domestic steel producers led by US Steel and the United Steel Workers but signed by many others, claimed the subsidies from the Chinese government allowed the firms to overwhelm their U.S. rivals. The companies alleged that their Chinese rivals received discounts on raw material and loans from government-owned firms. Needless to say, the Chinese vehemently deny the claims saying they have to pay market rates for their raw steel and are funded by bank loans at commercial domestic Chinese rates. Unfortunately, the data provided by those bringing the case is not yet available to the public for wider review, but may be in early this month. They may be right that bank loans are not at commercial levels or that somehow state and private steel producers have been coerced into supplying the pipe makers with raw material at subsidized prices but until the data is made available, we have no way of checking. Knowing how ruthlessly Chinese companies tend to compete against each other, extracting the highest possible price they can in what is a cutthroat domestic market, we find it hard to believe they are being subsidized in terms of cheap raw materials but low cost loans are a distinct possibility, as we have written elsewhere the Chinese banks have been almost forcing loans onto the commercial sector. Cheap land and tax breaks in the early years of operation are also a possibility, conceivably reduced power tariffs – we have seen that for aluminum producers, but then loans and tax breaks are often extended to firms in the US too. All in all it is easy to see how a combination of small advantages could add up to a significant cumulative advantage justifying anti dumping tariffs, we eagerly await the details.

Meanwhile according to China Economic.net the Commerce Department set a preliminary duty rate of 12.97% on the Hengyang group of companies and 11.065% on the Tianjin Pipe Group Co and related firms. All other Chinese producers and exporters will face a countrywide duty rate of 12.025%, according to the site.

Some observers were casting around for a commodity on which the Chinese could retaliate and suggested soya, of which some $7.5bn is imported each year from the USA, but the Chinese were at pains to state they had no intention of retaliating and instead vowed to fight the case through the WTO.

Even though Chinese steel pipe imports had dropped to 14% of the US market they no doubt still played a significant price-benchmarking role for consumers. With that option effectively removed from the market, or at least handicapped by double-digit duties expect pipe prices to rise in coming months. Indeed the discount on imported pipe has already reduced from some $50/ton to barely $10/ton now as volumes have been impacted by the anti dumping cases. Domestic producers didn’t have a lot to cheer the last 12 months but they should now feel the future looks a little better.

–Stuart Burns

Last year we heard from dozens of MetalMiner readers that you would like to see a few metal market overviews via webinar. Based on the feedback we received, our audience appears split between the steel and nonferrous metal market updates. Therefore, we will split events up and stick to a one-hour format until you tell us otherwise. Initially, the webinar will include an approximate 20-minute overview of both aluminum and stainless steel markets. The market overviews will examine raw material costs, global supply and demand, with a special emphasis on Asian demand. Hosted by MetalMiner editors, Lisa Reisman and Stuart Burns the overview will set the stage for a deeper analysis of the US market led by Tony Amabile, Director of Marketing for TW Metals, a specialty metals market distributor and sponsor of the event.

The webinar is a no cost event for attendees and will appear live on Wednesday, March 10 at 9:00am CST. Readers can learn more about the event and register here MetalMiner Perspectives: Q2 Aluminum & Stainless Steel Market Update

About TW Metals: TW Metals has a leading position in the specialty metals market. TW stocks and processes pipe, tube, bar and rod in stainless, aluminum, alloy and carbon, as well as a variety of high alloys such as nickel and titanium. Headquartered in Exton, Pennsylvania, TW has a large distribution network in the U.S. as well as Europe and Asia.

We hope you can join us!

–Lisa Reisman

One question everyone likes to ask us is this: how accurate were your previous predictions? Since we don’t exactly self-score, we’ll give the stock answer we give all of our prospects, “go back and judge for yourself. To save you the trouble, here are two of the most popular posts we have ever written on the subject of steel price predictions: 2009 Steel Price Predictions Part One and 2009 Steel Price Predictions Part Two. Steel prices for 2010 already have their own set of dynamics making the business of forecasting tricky indeed. If one asked us to identify the key themes for steel prices in 2010, we would suggest several and the bigger ones include: higher raw material or input costs, China growth, sluggish Western demand and “little supply/demand changes make for big price changes.

We have already witnessed substantial flat rolled price increases with rebar showing the greatest price weakness. The question becomes, will the mills’ price increases stick? In one word, yes but the road will look a little bumpy. The other big variable in steel prices involves the global trade of steel. Last year, we witnessed several of the largest anti-dumping cases ever brought forward including one involving OCTG and the other for line pipe. We have also spent some time looking at the nature of our global trade deficit and sought greater clarity on the subject of currency pegs particularly as they relate to trade with China. On February 19, the American Institute for International Steel released a press release entitled: December Steel Exports Rise Year on Year Exports Contribute $10.5 billion Positive to Trade Balance. To better understand the context of those numbers, we decided to do some of our own digging to analyze the volume and value of imports against the volume and value of exports.

The results appear as follows:

The US runs a $6.3b steel trade deficit with the rest of the world. Last year, the US produced 82.3m metric tons of steel according to the World Steel Association at approximately 65% capacity utilization. This analysis probably raises more questions then it answers. For example, what should US trade policy look like given the size of the 2009 trade deficit? If the US steel industry operated at 65% capacity and yet the US ran a steel trade deficit of $6.3b how will trade policy change? Will it change? Perhaps more important to metals buyers, how will trade and anti-dumping cases impact steel pricing in 2010?

The MetalMiner Steel Price Perspectives 2010 contain detailed EAF and BOF production cost models updated with the latest raw material costs, a quarterly price forecast as well as a detailed global analysis of steel pricing leveraging historical data from our proprietary MetalMiner IndX(SM). Single reports are available through the above link for $347 and $1257 for a quarterly subscription. Discounts are also available.

–Lisa Reisman

Japan’s JFE was surprisingly bullish in comments made by Tsutomu Yajima, senior vice president of JFE Holdings’ core unit JFE Steel Corp, in a Reuters article. Yajima is quoted as saying the company is in talks with its clients in Asia to boost its hot coil prices by $200 per metric ton to the mid-to-upper $700 range in Q2, from around $550 in January-March. JFE also aims to raise the price of shipbuilding plates by $150 to $750, he said.

The World Steel Association anticipates a 57 million ton increase in steel demand in Asia in 2010, or 8%, although JFE is forecasting it will be much stronger. The firm expects the region to increase its steel-making capacity by only 50 million tons in 2010 as many old Chinese mills will be closed down, allowing steel makers to pass on rising costs in higher prices.

Asian iron ore prices have jumped since buyers have returned to the market after the Chinese New Year. And though inventories at China ports have risen slightly to 69.42m tons, the first trades have been at US$136/ton for 62% Australian and 63.5% Indian ores CIF main Chinese ports according to this article. Having said that, analysts do not think prices will hold at this level and are expecting a period of de-stocking to impact prices in coming months. Swaps contracts for the second quarter were pegged at $129-$131 and at $126-$129 for the third quarter according to another article.

Comparisons with January 2008 are interesting but hardly of any use in determining current trends simply because production was so low last year an increase now is inevitable. Details of a World Steel Association report in Reuters said global crude steel production jumped 25.5% year-over-year in January but more importantly increased 1.8% over December as steel makers continued bringing back idled capacity, banking on economic recovery. Production in January totaled 108.9 million tons versus 107 million tons in December, while crude steel output in China, the world’s largest steel producer and consumer, was up only 0.2% on a monthly basis.

Quite where JFE sees this surge in demand from is not clear. But they say demand will come from   automotive steel sheet and tin plates, likening the situation to early 2008 when strong demand and skyrocketing raw materials costs pushed hot coil prices to $1,000 per ton. We would be staggered if that happened this year given the world crude steel capacity utilization ratio. According to WSA, in January 2010 that ratio was still only 72.9% up from 71.9% in December 2009.

The position of European producers seems a more likely reflection of reality, although it may just reflect the slower rebound Europe is seeing compared to Asia. Swedish steel producer SSAB Chief Executive Olof Faxander said in a Reuters report that he expected the price of iron ore, coal and coke to rise during the period, and global steel demand to strengthen somewhat in the first quarter compared with Q4 ’09,” he added. “We see an end of inventory liquidation and a slight improvement in demand from end-consumers.” Hardly set the world alight comments but probably a fair prediction of a gradually rising demand.

–Stuart Burns

Today, you may have noticed a few site changes. Back in January, we warned you that we might make a few. The biggest change involves MetalMiner moving into the world of ecommerce by providing metal market perspectives for the complete range of industrial metals products. You can find more information about those reports through the link here:

Price Forecasts New!

When we launched this blog site just over two years ago, we didn’t exactly have a clear direction as to what this site would become. But you have surprised us! And the world of analytics is one that fascinates me personally as it has given us an opportunity to fine tune the nature of the content we provide. You all have told us loud and clear that market changes, global economic trends and price direction are all things that are very important to you. So the price perspectives series really is just a natural extension of synthesizing all that we write on these virtual pages.

Now since we know most of you are in the sourcing/purchasing/procurement functions within your companies, we have tried to position the offering at price points that everyone can take advantage of and we hope that you will agree.

But now we thought we’d share with you a few tidbits about the reports so that our regular loyal readers will have some more insight as to what drove us to develop these reports and how we have structured them. First and foremost, we have structured them knowing you will probably not want to sit down and read a 100-page report aimed in the rearview mirror telling you all about last year. Instead, these reports (price perspectives as we have named them) examine just the basics nothing more and nothing less. Each report ranges in length from 7 13 pages. Wherever possible we have attempted to include MetalMiner IndX(SM) data, production cost models (you will find those in the aluminum and steel reports) as well as key road signs to watch as you coordinate this year’s purchases, and later in the year, your 2011 budgets.

Each report comes either as a single or as part of a yearly subscription in which you would receive one report per quarter. And of course, we offer volume discounts! Unfortunately, we will not launch with a few reports, namely tin, gold/silver, ferro alloys and aerospace metals. We will endeavor to get those reports completed inside of February.

And as always, please drop us a line with your feedback. We get a lot of great ideas from you!

–Lisa Reisman

AT Kearney recently published a report called “Mining + Steel How Will M&A Play Out? The report raises some interesting points and theories on what M&A activity might look like for the steel and mining industries and perhaps of greatest interest, why those activities will take place. We’ll limit our discussion to what we consider the most interesting points.

Those points center on the following concepts. The first, though at first blush appears obvious may not appear as common knowledge to many sourcing professionals large global diversified conglomerates have larger market caps than their single commodity peers, within the mining industry. The second concept that we found intriguing centers on AT Kearney’s “Merger Endgame Theory which suggests, “all industries will consolidate globally over a roughly 25 year horizon in four stages. The third concept that supports much of what we have reported on MetalMiner, centers around the correlation between iron ore and steel prices (which according to AT Kearney that correlation has increased since 1998). Finally, the report suggests four M&A scenarios involving mining companies and steel mills with the likeliest scenarios involving mining consolidation and steel consolidation (vs. steel firms buying mining firms or mining firms buying steel firms).

What can we take from the first point that market cap increases when mining companies have diverse vs. less diverse portfolios? AT Kearney makes the point that global mining firms remain highly fragmented so plenty of consolidation opportunity exists. We’d go one step further by stating that the high stakes game for “shoring up raw material supplies in all metal supply chains will also play a role in these global M&A deals and we’ve just started seeing this for some of the rare earth and critical metals supply chains (see our recent post on Posco’s investment in PAL, a lithium project).

We won’t comment on the Merger Endgame Theory except to say it’s interesting and we’d encourage readers to click through to the report just to look at the theory.

The third point, suggesting iron ore prices and steel prices more tightly correlate then they did previously should not come as a surprise to anyone. As the Big 3 iron ore producers now have 70% of the iron ore market, we’d expect that to be true. Based on our own regression models, however, several other factors also tightly correlate to steel prices besides iron ore. Finally the four M&A scenarios outlined in the paper examine several rationales for the various scenarios. These include increased consumption, resource scarcity, improved technology, globalization and increased regulation. The report predicts an increase in M&A activity, “if these industries grow significantly, companies will have cash to invest and will face pressure to deliver better results, which means M&A will be the most logical strategy, the only damper to that scenario rests on the overall health of the global economy. But a weak economy will also drive more M&A deals as cash-rich firms search for discounts. So no matter which way things go, we can expect a lot more M&A in the mining and steel industries.

Now what that will do for price stability or volatility, well that’s a subject of another post!

–Lisa Reisman

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For those of you who missed it, the Wall Street Journal ran a fascinating supply chain management piece yesterday entitled, “Bullwhip Hits Firms as Growth Snaps Back. The notion of bullwhip refers to the effect of trying to determine inventory levels based on a forecast. The article, which I highly recommend reading, discusses how Caterpillar has worked with its key suppliers (the article cites 500 suppliers representing 80% of manufactured parts) to prepare them for the sudden onslaught of new purchase orders initiated by the heavy duty equipment manufacturer. Jason Busch of SpendMatters covered the supply risk management angle yesterday.

In addition to the points Jason made, one point that we’d like to call out and of particular concern to metal buying organizations involves the substantial price risk that occurs when a supply chain(s) undergoes a bullwhip effect. As we at MetalMiner have started to complete our price predictions for key metals for 2010, (we will publish these reports starting the end of next week) we know that some of these price jumps in certain metals relate to re-stocking activities (e.g. once a company has burned through its inventory it has nothing to do but purchase materials, parts and assemblies for production) and not necessarily underlying demand. We believe this activity helps explain what has happened to steel prices in the last 30-45 days the mills have raised prices because companies have to replenish inventories and re-stock. And as the Wall Street Journal article discussed, the challenge for Caterpillar and its suppliers involves having the labor, raw material inventory and finances to purchase these materials to meet the demand of a company like Caterpillar once the purchase orders start to increase.

But let’s return to how this relates to metal pricing. Based on my recent discussions with various steel industry participants, I can’t help but get the feeling that folks have a very bullish outlook in terms of steel prices. And whereas small upticks in demand can and will have profound impacts on pricing, (and we ourselves believe steel prices will increase this year), I remain rather cautious about the overall state of industrial demand. These re-stocking cycles will only go so far. Eventually, real demand will need to take over. In the meantime, get ready to ride the pricing roller coaster. We think it will be an up and down ride in 2010!

–Lisa Reisman

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I always get a chuckle when I read the mainstream press accounts on any company’s earnings announcements. Take a look at a few that came out no sooner than five minutes after Nucor’s announcement yesterday, “Nucor 4th Quarter Profit Drops 44%, Less Than Feared, Revenue Drops Off 29% or this one, “Steelmaker Nucor 4Q Profit Falls 44%. My boss from Arthur Andersen once had a very prolific phrase when somebody stated the obvious, “yawn. We couldn’t agree more. All the steelmakers and most metal producers came in with numbers showing declining profits, revenues etc. So instead, we think buying organizations ought to use these earnings announcements as opportunities to gain clues about the steel markets in general. We took away a few sound bites and thought we’d share them with you here:

  • Long products took the hardest hit and sheet mill sales carried the profits for Nucor in Q4
  • Margins declined from $459/ton average in 2008 to $290/ton for Q4 but raw material prices have started to increase
  • We heard demand will remain a long hard slog (our words, not theirs) but demand has increased in pockets. For example: power transmission, bridges, wind energy, and automotive
  • Certain industries remain flat such as commercial and residential construction; real demand (which refers to actual demand not counting stocking/re-stocking) will continue to struggle; growth will remain “arduous
  • Service center inventories have a 2.3 month supply (considered lean); Nucor sees more expedited orders, a strong order book for galvanized and galvanneal products
  • Nucor wants to grow its export sales from 11% of total sales to 15%. (AK Steel generates 19% of its total sales from exports) Exports have become a strategic growth initiative for at least a couple of domestic producers
  • Despite average capacity levels in the 60% range, Nucor has still invested in new plants including one for bar products, iron making, a galvanized line and several others
  • Nucor plant utilization rates will range from 60-65% in Q1. Will margins increase? Nucor didn’t completely answer that question but they did indicate that shipments are up, selling prices have increased and scrap prices have increased; margins will likely get healthier too

MetalMiner will release its 2010 steel price predictions within the next week to ten days. Click on the link below to receive notification when the report will be made available.

–Lisa Reisman

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From a short-term perspective, higher scrap prices can only mean one thing, higher steel prices. And generally speaking, we see rising scrap prices along with higher iron ore and coking coal prices as the primary drivers to higher steel prices. However, although demand looks better than it did during the first half of 2009, it remains tepid. According to a recent article from Recycling Today, ferrous scrap prices for the second month in a row, “took a sharp upward turn. After having bottomed in April 2009 according to the USGS, according to our own tracking and analysis, scrap prices have increased three months in a row.

But some of the increase in scrap prices may involve other factors than simply rising steel demand. Cold weather impacted inflows particularly here in the North but throughout much of the country during the first couple of weeks in January. Scrap supplies also remain tight because less demolition projects have taken place and when consumer demand for steel intensive white goods or automobiles remain depressed or down, consumers don’t hand over their old units that typically make their way into the scrap supply chain. Automotive demand has also remained somewhat flat. Nevertheless, prices have increased for most spot buyers to more than $300/ton, according to Recycling Today. Moreover, the national average rose to $387/ton.

Some consider exports the wild card of the scrap equation, according to the article. To give a sense of the size of scrap exports to the overall US market, we took a look at the most recent USGS Mineral Industry Survey and as of September 2009, the US exported 15.4m metric tons of a total 36.8m metric tons consumed by the domestic market or 42% of all scrap generated goes toward exports. The US did import 1.92m metric tons. If export orders decline, US producers will certainly put some price pressure on the scrap dealers for better pricing. We’d concur that export orders will help drive the scrap price equation in the short term. Now whether the mills will share any price drops with consumers should export orders falter, well, that’s a different story.

–Lisa Reisman

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Don’t be fooled by the flood of new economical small cars being announced this year, of which those on display at the Detroit Motor Show are only the beginning. Whatever the manufacturers may tell us, they are not really aimed at the US buying public. Led by Ford and Toyota, long the visionary leaders in developing the concept of the world car, a model so ubiquitous it would appeal in its standard form to buyers from Shanghai to Seville to Seattle, manufacturers have poured billions into developing models that can be produced on the same platform in multiple locations around the world and in so doing save them millions in production and duplicated R&D costs. Ford’s new Focus is probably the pinnacle of this trend, widely anticipated to be a huge hit in the US following its release at the show and already a best seller in Europe. While the economics of a one world car are indisputable it raises the question of whether  the world is really ready for the concept. The desire for small, medium and large cars varies dramatically around the world and to pour all one’s resources into developing small cars, manufacturers are ignoring a still significant market for medium to large saloons.

In 2009, 89% of cars sold in China were for the compact and sub compact market, stimulated no doubt by the government’s financial incentives to buy sub 1.6ltr engines, but in the US, which was going through the worst recession in 70 years, numbers had only crawled up to 21%. Jim Hall, managing director of motor industry analysis firm 2953 Analytics is quoted in the  Telegraph as saying manufacturers are perhaps fooling themselves, as outside of major urban centers like Manhattan, Boston and San Francisco, there is little actual demand for compact cars, especially with petrol prices back at the $3-a-gallon mark compared to the $4-plus peak in the summer of 2008 when oil topped out at $147-a-barrel.

Sales in North America for these small cars are likely to disappoint compared to other parts of the world and a better solution may be to develop more fuel efficient engines to power larger sedans (the route Mercedes and BMW are taking with their E class and 3 & 5 series diesel saloons),  some  of which are now capable of over 50mpg. Part of the manufacturers need for smaller cars stems from new environmental standards, with cars expected to be able to return 35.5 miles per gallon by 2016 under new US guidelines, manufacturers are judged on the average efficiency of their fleet. American buyers are, on the whole, not interested in small cars or in paying high upfront costs even if the long term economics are more attractive. Witness the hybrid market. After 10 years of availability in America – the most affluent major car market in the world only 2.8% of US cars are hybrids.

This has implications for the metal supply industry. Where during the recession the temporary  trend to smaller car sales exacerbated the decline in steel and aluminum consumption, the migration back to larger saloons likely to result from a gradual improvement in the economy will see a larger per vehicle metal consumption adding incrementally to metals consumption in the reverse of the demand destruction we saw last year. All this hype about a new generation Prius, the Nissan Leaf and GM’s Chevy Volt will amount to nothing in metal consumption terms. At a likely sales price of $30k, even after a $7,500 per car green technology rebate, sales of the Volt will be a dismally small part of the anticipated 11.5 to 12.5 million production units predicted by the industry for this year. And what does Mr. Hall think sales will be for 2010? He is expecting a double dip due to the heavily indebted commercial property market and says sales as a result will be just 10.9m. Let’s hope he’s not right on that one.

–Stuart Burns

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