Articles in Category: Supply & Demand

China is the world’s top producer of steel, but it hasn’t been that good or profitable for years.

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Despite, or more likely because of the supply side squeeze enforced by Beijing, possibly up to 100,000 tons of “illegal” (not approved) production capacity has been closed down. Much of this was Electric Arc Furnaces (EAF) based on scrap raw material and deemed too polluting to be tolerated by Beijing.

In practice, EAF technology is anything but polluting and should be preferable environmentally to the blast furnace route. However, much of China’s capacity was small-scale private plants lacking environmental controls and permits.

According to Reuters, quoting CRU data, China’s steel capacity has fallen by 240 million tons over the past three years to about 1,020 million tons this year. Ironically, production has never been higher. It rose 6% from January to October, according to Reuters, and 2017 is set to be an official record high.

The key word here is “official” because historically none of this “illegal” capacity appeared in the official figures, so approved mills are running at near record capacity, estimated to be 85%, making up for the removal of their domestic competitors. Many of these EAF furnaces were making rebar, so not surprisingly rebar is in short supply and prices are on a tear.

Iron ore, particularly higher grade 65% minimum Fe content iron ore is also doing rather well. Despite port stocks running at over a month’s supply prices have reached over $72/ton as mills re-stock with the most efficient-to-produce and least polluting highest grade ore, according to Bloomberg.

All this rationalisation of supply and robust domestic demand has taken its toll on exports. As we reported earlier this week, China’s steel exports have slumped by a third this year. And as the domestic market gradually moves from a buyer’s market to an allocation-driven seller’s market, prices are rising. Read more

The Automotive MMI, tracking metals and raw materials used within the automotive industry, jumped 4.3% to a value of 97 for May.

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Here’s What Happened

  • The U.S. HDG steel price tracked by the MetalMiner IndX jumped 11% to an 8-month high for December, last reaching its current level in April 2017. U.S. shredded scrap prices also spiked to an 8-month high, driving this sub-index higher.
  • Our Auto MMI has had a stalwart Q4, with sustained values in the 90s. In fact, the last time this sub-index reached 97 was in September 2014.

What’s Going On in the Background?

  • Auto sales in the U.S. were helped along by automaker and dealer incentives for consumers, with the return of the holiday shopping season — especially Black Friday, according to an AP report.
  • Edmunds.com predicted “November sales will rise 3.5 percent over last year to 1.4 million vehicles,” according to that report.
  • The historical picture, however, shows that while car sales are in a longer-term downtrend, light truck sales are in a longer-term uptrend, according to the WSJ.
  • As for the Chinese auto market, vehicle sales increased by 2% year-over-year in October, growing for the sixth consecutive month, according to MetalMiner’s monthly metal buying outlook report. New-energy vehicle sales also boomed this year, driven by government incentives to support the EV sector.

What Metal Buyers Should Look Out For

  • The state of how sales within the automotive market are structured could offer some hints as to what the future holds. Brandon Mason, a director at PwC’s automotive practice, told Reuters that, “a worrying trend for the industry was a rising number of deep subprime loans. He said subprime levels are at just over 20 percent of originations, against more than 30 percent prior to the Great Recession, but recent increases remain a concern.”
  • HDG prices, however, may be the biggest elephant in the room — not to mention often the single-biggest driver within our market basket of metals used in the auto industry. According to MetalMiner’s analysis in the monthly outlook, while 2016 saw a sizable increase in HDG prices, they’ve begun to level off to the point that real price strength is not yet evident. With slowing Chinese prices and pending circumvention cases, HDG prices may reverse this month’s uptrend just as quickly as it began.

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The 14-strong Organisation of Petroleum Exporting Countries (OPEC), along with 10 oil states outside of the cartel, has reached an agreement to limit oil output until the end of 2018. This decision comes after what has already been more than a year of production cuts, the Telegraph reports.

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This new deal, wider and more inclusive than the one running since the beginning of this year, will also extend to Nigeria and Libya. Previously, these two countries were exempt from the production quotas, despite being OPEC members, because of their struggles with internal political unrest.

OPEC crucially reached an agreement despite the last-minute posturing from Russian oil minister Alexander Novak, who warned that oil prices above $60 a barrel could reignite a production boom in the U.S. shale industry.

The agreement reached by the OPEC and non-OPEC members faces several serious challenges in achieving its objective of stabilising oil prices. The first is that one of its core members, Russia, does not appear to share the same objectives. They may be saying the right things, but according to Georgi Slavov, head of research at broker Marex Spectron, Russia’s cooperation is mostly “in words.”

“In reality Russia has been pumping oil like crazy and this will likely continue. As prices rise the incentive to cheat will too. Others may join the party,” Slavov said. “It is astonishing that the entire market is ignoring this. The market’s fixation is currently on what could happen. However, it is not paying attention to what is actually happening.”

A later article throws further light on the Kremlin’s position, saying Russia has a higher tolerance for depressed prices since the floating rouble cushions their budget.

Russia aims to balance the books at oil prices of $44 by 2021 under its fiscal plan, compared to $113 four years ago. Supported by ultra-low production costs, Russia is loath to cede market share and worried that prices above $60 a barrel will re-ignite significant U.S. shale activity, bringing prices down and reducing everyone’s market share as the same time. Read more

Besides bringing back some cheer to the sector, the latest report by industry monitoring body World Steel Association (WSA) on crude steel production reveals an interesting story.

World crude steel production soared in October, thanks to higher output in China, the U.S., India and Japan.

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While production in the U.S. zoomed by 12% year-over-year in October, China manufactured 72.4 million tons (MT) in the same month, a 6.1% year-over-year increase and 10 times more than the U.S. did that month.

India, on the other hand, produced 8.6 MT of crude steel in October, up by 5.3% to 8.6 MT.

Clearly, the October cheer is positive news, in the sense that the steel sector is making a comeback. The WSA tracks steelmakers in 66 countries globally, representing about 85% of total steel production, and has said in this report that world steel production increased 5.9% year-over-year to 145.3 MT in October.

The China steel story, incidentally, produced nearly half of the world’s steel in October, which indicates a revival of sorts in the growth story there, too.

According to Moneycontrol.com, the downside was reported from Japan, the world’s second largest crude steel producing country. It registered a 1% contraction in output at 8.971 MT in October 2017, compared to 9.060 MT during the same month last year.

During the first 10 months of 2017, Japan’s steel output dropped from 87.442 MT to 87.239 MT, a 0.2% dip compared to the same period last year.

There’s a keen tussle on between the four steel giants (the U.S., China, Japan and India), with the latter already the world leader in stainless steel production and the third largest crude steel producer.

For example, India had overtaken Japan to become the second-largest steel producer in the world after China in 2016, according to the International Stainless Steel Forum. The country’s stainless steel production had gone up to 3.32 MT for 2016, approximately 9% more than the 3.0 MT achieved in 2015. Read more

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Indian industry is in the midst of a mini-crisis — more specifically, a power crisis.

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In fact, both industrial and retail consumers in many parts of the country are reeling from electricity cuts, due to a shortage in supply of coal to thermal plants.

Incidentally, Piyush Goyal, India’s coal minister, was also appointed railway minister recently. The railways transport a bulk of the coal to power plants around the country.

Yet, not much is coming out of the minister’s office regarding the coal shortage. In fact, in his role as coal minister, Goyal earlier declared India’s “independence” from imported coal.

Some time in June this year, the coal secretary announced India did not need to import coal from anywhere in the world, as it had sufficient capacity.

Now, all that seems so far away.

Read more

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The European Steel Association (Eurofer) had good news about the EU steel sector last week, albeit with a caveat.

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According to a report from Eurofer last week, EU investment in steel and its exports have trended positively.

“Strengthening investment and robust exports are boosting the performance of steel-using sectors in the EU,” the report states. “Steel demand is expected to continue its gradual recovery in 2018.”

The report continues with a caveat.

“However, increasing import pressure in in the second quarter of 2017 signals that foreign supply remains a critical issue for the EU steel sector.”

Steel consumption in the EU dipped slightly in the second quarter compared to the first quarter, according to the report. As a result, EU domestic suppliers suffered. Deliveries by EU domestic suppliers in the second quarter fell 3.5% year-over-year. In addition, third country imports rose by 10% year-over-year.

“The relative balance between growth in domestic and foreign supply seen in the first quarter of 2017 was reversed at the expense of EU steel mills,” said Axel Eggert, director general of Eurofer, in a prepared statement. “Despite a reduction in imports from China and several other countries owing to corrective anti-dumping duties put in place third country import volumes have risen again in the second quarter.”

Overall, however, EU steel consumption for 2017 is forecast to rise 2.3%. The report also notes that steel demand is expected to continue its “gradual recovery” into next year (a recovery dating back to 2014). The report cites the “expected rise in real steel consumption in the EU market and very modest support from the stock cycle” as factors underpinning the ongoing bounceback.

As for steel-using sectors, the report states production activity grew by 3.1% year-on-year. Moreover, first-quarter growth was revised up to 6.3% (compared to the same period in 2016).

“We welcome the healthy performance of relatively steel-intensive sectors,” Eggert said in the release. “These include the automotive and engineering industries, as well as tube manufacturers, over the first half of 2017. Growth in the construction industry was the strongest it has been for many years and clearly reflects improving fundamentals in this important steel-using segment.”

Eurofer expects total output to continue to trend positively throughout the remainder of the year, building on the momentum of the first half. Total output is forecast to rise by 4.2% for the year, according to Eurofer.

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Despite import pressures, the total economic picture for the EU bloc leaves room for optimism. Eurofer’s October outlook forecasts GDP growth of 2.1% this year and 1.9% for 2018.

“The business climate looks set to remain supportive to continued healthy investment growth, whereas private consumption growth is foreseen to slow down somewhat,” the report states. “In combination with stable growth of government consumption, domestic demand will be the major driver of economic growth in the EU.”

The U.S. Department of Commerce. qingwa/Adobe Stock

This morning in metals news, U.S. manufacturers are pleased that the U.S. Department of Commerce’s ruling in a recent antidumping case treats China as a non-market economy, BHP looks to meet copper demand with more drilling and U.S. Steel reports its third-quarter earnings.

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Manufacturing Group Praises DOC’s China Decision

The Manufacturers for Trade Enforcement (MTE) expressed their support for the Department of Commerce’s recent antidumping ruling on Chinese aluminum foil (for which dumping margins were assigned based on the department’s non-market economy dumping methodology).

“Fair international competition and a level playing field are essential for the global competitiveness of U.S. manufacturers,” said Thomas J. Gibson, president and CEO of the American Iron and Steel Institute and co-chairman of the MTE. “China has not met the statutory criteria to be treated as a market economy, and we applaud our government’s commitment to ensuring China is not prematurely awarded market economy status.

“Substantial state intervention in the Chinese economy has resulted in significant overcapacity in many manufacturing sectors in China while also distorting global markets and hurting American manufacturers. Jobs have been lost in all of our industries. China should not be afforded market economy status while still maintaining a state-controlled economic system that encourages unfair trade practices that injure multiple U.S. industries.”

BHP Aims to Meet Copper Demand

Miner BHP, in efforts to meet growing copper demand in an increasingly electrified automotive market, is turning to the drill, according to Reuters.

According to the report, BHP’s copper exploration budget has hovered at an annual average of $60 million the last 4-5 years.

U.S. Steel Posts Solid Third Quarter

U.S. Steel reported third-quarter net earnings of $147 million, or $0.83 per diluted share. Third quarter 2016 net earnings were $51 million, or $0.32 per diluted share.

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“Our third quarter results were modestly better than we expected, with stable operating performance at each of our segments and our Tubular segment producing positive EBITDA in the quarter,” said Dave Burritt, U.S. Steel’s president and CEO, in a release. “Our results for the first nine months of 2017 improved over the first nine months of 2016, with all three of our segments improving compared with 2016.”

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Before we head into the weekend, let’s take a look back at the week that was:

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Free Download: The October 2017 MMI Report

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So far this year, the U.S. has imported 19.6% more steel than it did through the same time frame last year, according to data released by the American Iron and Steel Institute (AISI) on Wednesday.

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According to preliminary Census Bureau data cited by AISI, through the first nine months of 2017, total and finished steel imports amounted to 29,663,000 and 22,890,000 net tons (NT), respectively. Compared with the first nine months of 2016, total and finished steel imports are up 19.6% and 15.7%, respectively.

Finished steel import market share was an estimated 27% in September, a percentage point below the 28% year-to-date market share. Estimated finished steel import market share peaked in June — around the same time as the Trump administration’s first self-imposed Section 232 steel probe deadline, which came and went without a decision (and remains outstanding) — when it eclipsed the 30% mark.

Source: AISI

By item, a number of steel product imports jumped significantly in September compared with the previous month. Those spikes include: reinforcing bars (up 85%), line pipe (up 35%), tin plate (up 31%), oil country goods (up 23%) and plates in coils (up 11%).

In the year to date, imports of oil country goods (up 255%), line pipe (up 60%), standard pipe (up 45%), mechanical tubing (up 32%), cold rolled (up 28%), sheets and strip all other metallic coatings (up 26%), sheets and strip hot dipped galvanized (up 22%) and hot rolled bars (up 19%) all posted notable increases. 

South Korea once again emerged as the top steel exporter to the U.S. last month. In descending order by volume, the top exporters to the U.S. were: South Korea (321,000 NT, down 11% from August), Japan (169,000 NT, up 32%), Germany (151,000 NT, up 53%), Taiwan (120,000 NT, down 2%) and Turkey (112,000 NT, up 5%).

South Korea also leads the way through the first nine months of the year, sending 2,949,000 NT to the U.S. (down 2% versus the same period in 2016), followed by Turkey (1,944,000 NT, up 5%), Japan (1,234,000 NT, down 14%), Taiwan (1,026,000 NT, up 36%) and Germany (1,001,000 NT, up 6%).

Speaking of Section 232, the Trump administration’s probe of the national security implications of steel imports, the wait continues for a ruling. The probe, launched in April, carries a Jan. 15 deadline. At that point, Commerce Secretary Wilbur Ross is required to present the president with a report detailing findings and recommendations. If Ross determines the imports are a threat, the president then 90 days to decide if he agrees and whether or not to use his statutory authority to adjust import levels.

Mid-summer optimism from domestic producers, who expected the Trump administration to enact some sort of trade remedy (whether in the form of tariffs, quotas or a combination of the two) has waned. With NAFTA, health-care reform, tax reform, immigration and a number of other issues dominating the administration’s focus, Section 232 chatter has seemed to die down in recent months.

U.S. steel producers are still holding out hope for Section 232 action addressing the rise of imports. Nucor CEO and Chairman John Ferriola touched on the issue of imports during the company’s third-quarter earnings call last week.

“Nucor continues to believe significant work remains to be done to achieve free and fair trade for U.S. manufacturers,” Ferriola said during the call. “More specifically, it’s time for comprehensive and broad-based remedies that address the illegal foreign trade practices that have materially weakened our nation’s economic vitality.”

The last Section 232 probe took place in 2001, when the George W. Bush administration looked into imports of iron ore and semi-finished steel. Ultimately, it was determined those imports did not pose a threat to the country’s national security.

Free Download: The October 2017 MMI Report

This time around, U.S. producers are hoping for a different determination.

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Chinese steel output is falling, according to The New York Times.

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Crude steel output hit 71.83 million metric tons in September, the lowest since February and down from 74.59 million tons in August, according to National Bureau of Statistics data last week. September’s average daily output was 2.39 million tons, down 0.8% from August (but still 5.3% higher than in 2016).

After a year in which mills have been cranking out every ton they can muster and prices have been booming on the back of plant closures, the recent fall in output is telling.

Read more