Steel

The Raw Steels Monthly Metals Index (MMI) rose by 4.9% month over month, even as U.S. steel prices continue to fall (at least for now).

Source: MetalMiner Insights

U.S. steel prices, with the exception of plate, continue their descent in spite of curtailments and capacity delays instituted by steelmakers. Hot-rolled coil prices have closed in on the $1,000/st price mark. Prices now sit almost 47% beneath last October’s peak.

Buyers should make sure to take advantage of falling steel prices and follow best practices to buy strategically. 

Steelmakers announce price increases

Eager to stem the drop, both Nucor and Cleveland-Cliffs announced increases for steel prices in late February. Both steelmakers increased prices for HRC, CRC, and HDG by $50/st.

The increases follow a number of outages and delays from various steelmakers. Cleveland-Cliffs will shut several lines from March 19 through June 11 for maintenance. The outage will cut output by as much as 411,000 short tons.

Cliffs will also idle its Indiana Harbor blast furnace. The outage will extend through April and could remove up to 1.4 million short tons from the market. U.S. Steel’s Granite City mill will likewise take a 25-day outage. The outages come alongside the delayed restart and start of Nucor’s Gallatin mill and expansion.

Between the delays and outages, estimates for total U.S. production lost extends to more than 30,000 short tons per day.

Domestic market exposure to Russia, Ukraine

As with other metals, the U.S. steel market remains vulnerable to the Russian war in Ukraine.

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The ongoing Russian-Ukraine conflict has impacted metal prices, including steel raw materials, and ferrous products prices.

Metal prices, raw materials on the rise

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Iron ore and coking coal gained the most over the previous week. Meanwhile, steel prices, week over week gained at the Shanghai Futures Exchange. A gradual pickup in Chinese infrastructure demand and the Russia-Ukraine war offered price support.

Russia and Ukraine are among the largest exporters of steel. A disruption in this supply chain saw buyers looking at other options.

One of those options? China’s, the world’s top steel producer.

Russian steel production reached an estimated 6.6 million tons in January, the World Steel Association reported.

Last week also saw prices of ferrous products going up while iron ore and coal futures, too, saw an upward trend. Both futures as well as spot prices of hot-rolled coil (HRC) saw growth.

We will continue to track steel price movements in the MetalMiner weekly newsletter. 

Steel, iron ore, coking coal jump

On March 2, 2022, steel futures in China touched more than a fortnight’s high riding on the belief that the Russia-Ukraine war would eventually pump up the demand for Chinese steel.

On that day, the May contract for hot-rolled coil on the Shanghai Futures Exchange ended up 2.1% at 5,138 yuan ($814.06) per ton after touching 5,158 yuan in the session (the highest since Feb. 11).

Source: MetalMiner Insights

Construction steel rebar went up 1.8% to 4,860 yuan a ton, after touching the day’s high of 4,893 yuan (highest since Feb. 14).

This also boosted interest in steelmaking raw materials like iron ore and coal. Last Friday, benchmark iron ore futures in China registered their biggest weekly gain in over two years at nearly 20% because of expected supply disruption.

The MetalMiner team will provide additional steel price coverage in the upcoming Raw Steels MMI. 

In fact, from the start of February, iron ore prices have been steadily going up because of anticipation of supply chain tightness before the Russian invasion of Ukraine and on its heels.

As the world looks away from Russia and Ukraine for its steel quota, China is the only one that has the capacity to step up on steel production, of course. However, that likely means increased pollution from the country’s coal-fired plants. Pollution is something the Chinese authorities have come down hard against in the past few years.

The Automotive Monthly Metals Index (MMI) fell by 0.7% for this month’s value, as palladium prices have surged while steel prices have retreated.

Source: MetalMiner Insights

Last year, MetalMiner added a suite of precious metals prices to the MetalMiner Insights platform. 

Russia-Ukraine war, the auto sector and palladium prices

The Russian invasion of Ukraine has yielded commodity price volatility spanning across sectors.

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Russia is a major producer of platinum and palladium. Palladium primarily goes toward catalytic converters in car exhausts.

As Western countries hit Russia with sanctions, some companies will have to look for alternative sources. (As always, buying organizations should make sure they are up to date on the best sourcing strategies.)

Palladium prices have surged in recent weeks, rising by 13% month over month as of Friday.

“Russia and Ukraine lead global production of metals such as aluminum, nickel, copper, and iron ore,” according to a special report by Dun & Bradstreet titled “Russia-Ukraine Crisis: Implications for the global economy and businesses. “Nonavailability of Russian as well as Ukrainian supplies could cause high prices along with volatility. For rare metals like neon, palladium, and platinum, Russia has been the primary supplier to Europe. Ukraine is also a vital source of rare metals (iron ore, manganese, titanium, gallium, kaolin, zirconium, and germanium) to Europe and the rest of the world.”

Platinum, nickel prices rise

On the other hand, platinum typically goes into diesel catalytic converters. Russia is also a major producer of platinum.

As the Dun & Bradstreet notes, South Africa is a potential alternative source of platinum for automotive manufacturers (or other platinum end users).

Meanwhile, nickel prices have also surged.

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Russia’s invasion of Ukraine has started to push up hot rolled coil prices on Western Europe’s domestic market due to concerns over availability and logistics, industry watchers and market participants said March 1.

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Keep an eye out for the upcoming Raw Steels Monthly Metals Index (MMI) report, which will include additional coverage of hot rolled coil (last month’s report is available for download). 

Hot rolled coil prices pick up in Western Europe

Mills are now offering €1,150 ($1,280) per metric ton exw for the flat rolled product, one trader told MetalMiner.

Transactions previously took place at €910-930 ($1,010-1,035) for April rolling and May delivery, MetalMiner reported earlier in the week starting Feb. 21.

Cold rolled coil normally carries a premium of €80-120 ($90-130).

Sources noted last week that end users in Central and Eastern Europe would face difficulty in the event of Russian invasion, as they normally acquire Russian and Ukrainian steel.

Turkish mills are now seeking $1,000 fob for exports to North Africa. That is up from $950-970 on the week, a second trader said.

The increases come as Ukrainian metals and mining group Metinvest announced a force majeure March 1.

“The ongoing hostilities in Ukraine, military blockades of sea ports, destruction or threat to land infrastructures could impair the performance of our contractual obligations” Metinvest said.

The invasion prompted state-owned Ukrainian Railways to announce a force majeure, also on March 1.

Ships are now avoiding Russian and Ukrainian ports on the Black Sea for fear of sanctions as well as danger to life and equipment, one shipping source told MetalMiner on March 1.

“Everybody is looking to get out of there,” that source said.

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To say the situation in Ukraine — and its impact on metal prices _— is constantly evolving situation would be an understatement. No sooner is the position defined when new developments put previous assessments out of date.

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Nonetheless, we will do our best to address many of the developments as they are evolving this week.

Furthermore, MetalMiner newsletter subscribers can find additional analysis of the ongoing situation in Ukraine and its potential impact on metal prices in upcoming editions of the MetalMiner weekly newsletter. 

European metals markets in flux as Russia-Ukraine war weighs on metal prices

Firstly, as we think about metal prices, let’s look at metal supply.

Both Russia and Ukraine are significant metals exporters and major suppliers to the European market. Ukraine exports some 80% of its steel and is a major supplier to the region of iron ore and alumina for making aluminum.

Ukrainian steel mills rapidly wound down when hostilities started. Inventory held at the mills and ports is largely moribund due to a lack of civilian road, rail and shipping services.

Logistics from Russia are not as dire so far. However, moves by some Western countries to ban Russian flights and vessels from calling at their ports will hamper movement of goods. So far, border posts remain open and road haulage is flowing freely. Even so, a significant hurdle is looming there, too.

Secondly, after a slow start, Western countries have been remarkably coordinated in applying sanctions on Russian banks in the form of a denial of access to the SWIFT payments platform. The SWIFT ban applies to about 70% of Russia’s banking activities. It is not a total ban. Notably, oil and natural gas payments are excluded. This is unlikely to change, several European countries economies and the whole European natural gas market would grind to a halt without Russian gas (and to a lesser extent oil).

In interviews with Russian producers, MetalMiner has heard firms are actively setting up European banking arrangements to get around the current and possible extensions to the payments ban by accumulating remittances from their European clients in the E.U.

How they are then offset against debts owed to the European banks in Russia is likely a complex process. However, it gives the Russian exporters a work around, for the time being.

Metal prices boom

The base metals markets were tight before the invasion.

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Continuing our coverage of the Russian invasion of Ukraine and its impact on steel prices, aluminum prices and more, the European Union has brought sanctions against two Russian metals magnates on Feb. 28.

The move comes on the heels of Russia’s invasion last week of Ukraine.

This week’s MetalMiner newsletter will include additional analysis on the Russian invasion’s impact on metals markets. 

EU sanctions Russian steel magnates

Alisher Usmanov, a majority shareholder in steelmaking and mining group Metalloinvest via his USM holdings vehicle, as well as Severstal chairman Alexei Mordashov, will both face travel restrictions and have their assets frozen in the 27-member bloc, news reports stated.

Metalloinvest has two steelmaking assets, the Oskol Electrometallurgical Plant (OEMK) and Ural Steel.

USM holdings also owns the Udokan Copper mine, which is under development in eastern Russia’s Zabaykalsky krai. Estimated copper reserves are 26.7 million metric tons, based on JORC classifications.

Mordashov owns 77% of Severstal and was CEO up until 2015. The main plant is Cherepovets, approximately 500 kilometers north of capital city Moscow. The plant can produce 10.5 million metric tons per year of crude steel via BF/BOF and the electric arc furnace routes. It then casts and rolls into longs and flats products.

It was not immediately clear how or if the sanctions would impact operations or exports from the steelmakers.

Russian steel exports depart from the Black Sea ports of Novorossiysk and Tuapse. However, there are unconfirmed reports that ships do not wish to call at those ports.

The sanctions follow moves by the United States, the E.U. and their allies over the weekend to disconnect some Russian banks from the SWIFT network. The network allows for fast cross-border payments.

The Russian Central Bank’s assets are also now frozen to prevent it from accessing its overseas assets.

This month’s MetalMiner Monthly Outlook will also include coverage of the invasion and its impact metals markets, from steel prices to aluminum to this month’s spike in nickel prices. 

Fighting continues

Meanwhile, in Ukraine, fierce fighting raged between Russian and Ukrainian forces in Kharkiv, following the Feb. 24 start of an invasion, which has received near global condemnation. There were also reports of fighting in around the port city of Mariupol, and attacks on capital city Kyiv, MetalMiner heard.

President Vladimir Putin on Feb. 27 ordered Russia’s military to put its nuclear deterrent forces on special alert in response to “aggressive statements” by the West, the BBC reported.

For European buyers tracking the conflict in Ukraine, MetalMiner Insights provides a full suite of European form/alloy/grade prices. 

Following the collapse of Greensill Capital in March 2021 many expected Sanjeev Gupta’s GFG Alliance metals empire to follow close behind. MetalMiner wasn’t alone in repeatedly questioning the murky financial structure of the sprawling group. Some media outlets suggested it reflected fraud bordering on a ponzi scheme. To most parties’ surprise, GFG has limped on for the last eleven months since Greensill’s collapse.

UK’s third largest steel producer

The temporary UK government moratorium bankruptcy proceedings due to the pandemic, only expired late last year. Surprisingly, the coup de grâce comes not from the aggrieved trade creditors, but from the British Government. In other words, the taxman has come to collect. Her Majesty’s Revenue & Customs (HMRC) has tried to force four companies in Sanjeev Gupta’s UK steel empire, into insolvency. This threatens the employment of close to 2000 people. This move could bring to an end Britain’s third largest steel producer. Although precise figures remain uncertain, the debts to the tax authorities alone run into tens of millions of pounds. £27m ($36.56m) one source suggested, with another investigation gathering speed into alleged fraudulent accounting at a sister enterprise, Liberty Commodities.

Tough pill to swallow for British steel-making

The move to shut down UK divisions of Gupta’s empire lands a tough blow for UK steel making in general. The companies involved all produce high-grade anti corrosion steels used in the oil and gas industry and aerospace.  This alone makes them valuable assets in a country with precious little steelmaking left. According to a post in the Guardian newspaper, the four companies having action taken against them include:

• Liberty Merchant Bar at Scunthorpe in North Lincolnshire.
• Speciality Steel UK, which employs close to 2,000 people at Rotherham and Stocksbridge in South Yorkshire.
• Liberty Performance Steels Ltd at West Bromwich in the West Midlands
• Liberty Pipes at Hartlepool in County Durham

Sign up for MetalMiner’s weekly newsletter to stay on top of European steel developments.

GFG Alliance has already sold or shuttered numerous companies in a desperate scramble to shore up its finances. Greensill Capital’s failure has also limited GFG’s ability to replace them. That failure says something about the quality of the group’s financial position. Some standalone companies such as car parts maker Liberty Aluminium Technologies (LAT) in the UK and steel companies in Europe have found buyers. But the remaining divisions have not found backers. The giant Aluminium Dunkerque operation reached a re-financing agreement with American Industrial Partners Capital Fund. Late last year however, AIP took title to the plant.

The end of the road for GFG and Liberty Steel?

Does this mark the last chapter of GFG and Liberty Steel? Perhaps it seems a little too early to write off Gupta. He is after all, a survivor.  However, if he manages to hold his dwindling empire together, the result may only look like a shadow of its former self.

The Automotive Monthly Metals Index (MMI) dropped by 2.5% for this month’s reading, following last month’s 3.4% decline.

However, from a historical perspective, the Automotive MMI sits just off its all-time high. For nearly all of 2021, the entire automotive industry has felt pain. That pain has come in the form of high prices, lack of material availability, and logistics delays. 

Steel mills, in particular, took a very aggressive negotiation approach with automakers during Q4 2021. In fact, MetalMiner stated that the mills’ aggressive approach would likely lead to demand destruction. Automakers then and now always have options. MetalMiner outlined a few of those options previously. Options include: moving tons to other suppliers, PPAP (qualifying new suppliers for new parts) new suppliers, among others. 

MetalMiner did not consider changes to boiler plate purchase order terms and conditions. But Stellantis opted for that strategy.

FWIW, this quick-read strategy brief outlines the “5 Best Metal Sourcing Strategies“

Steel mills took the first shot 

At the time, steel mills wanted to force automakers to adjust their 2022 contract pricing to better reflect the then-current spot market (+$1500/st for HRC). Mills, because of high demand and supply constraints, dictated all sorts of terms and conditions. These included: minimum tonnages, premium pricing for items the mills did not want to produce, adders and extras etc.  Negotiations took a “take no prisoners” attitude. 

Steel industry consolidation, most notably Cliffs buying up AK Steel as well as much of Arcelor’s automotive business, further tilted the negotiation balance toward suppliers.

Then the market started to shift

Several automakers in discussions with MetalMiner revealed frustration over the heavy handed negotiation approach taken by the steel mills. A few weeks later, prices had started to slip as new capacity came online and imports started to arrive in greater volumes. So far, steel prices have not reached a price floor.

Here is how metal buying organizations know precisely when markets shift out of trend.

Stellantis rebels with a big hammer

So it should come as no surprise that Stellantis recently released an extensive update to its standardized terms and conditions. Perhaps they did this in response to what it saw from suppliers. Many auto producers have reported significantly higher raw material price increases throughout 2021. In a recent Ford interview, the company indicated that it spent an additional $2-3b last year and will see another $1-1.5b in additional costs this year. Ford went on to say that the supply chain will loosen up during the second half of 2022 due to new chip capacity coming online and Covid impacted workers returning to work. 

As a result, MetalMiner speculates that Stellantis changed many aspects of its terms and conditions to counter what the company perceived as strong arm tactics across its supply base. Warner Norcross and Judd, a law firm, published a summary of those contractual changes. 

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The Raw Steels Monthly Metals Index (MMI) rose by 12.7% month over month to 121, as scrap prices made gains this past month.

U.S. steel prices continue to retreat from their 2021 peaks. At the start of the year, hot rolled coil prices sat almost 18% below the October high.

US steelmakers invest in scrap processing

As electric arc furnace (EAF) capacity expands, U.S. steelmakers are working to secure steel scrap supply, as the Wall Street Journal explained in a recent report.

In November, Cleveland-Cliffs purchased Ferrous Processing & Trading Co. for $775 million. The company represents 15% of the U.S. prime market. As Cleveland-Cliffs is the largest steel supplier to the auto sector, the acquisition will allow Cleveland-Cliffs to negotiate scrap collection from its own customers.

Also in November, North Star BlueScope purchased steel-scrap processing operations and the Delta Yard for $240 million from MetalX.

These recent purchases follow Nucor’s own acquisitions of both Garden Street Iron and Metal Inc. and Grossman Iron and Steel Co. Nucor currently operates 65 scrapyards. Its newest additions will serve to feed its forthcoming or expanding mills.

In total, investments from top steelmakers in scrap processors exceeded $1 billion in 2021.

EAFs, which are fed by scrap, currently account for roughly 70% of U.S. steel production. That share is expected to grow in the coming year as even more capacity comes online. Around 8 million tons of flat-rolled steel capacity was added over the past few years and an additional 10 million tons will be added by the end of 2024. North Star BlueScope alone will grow its own steel capacity by around 40% in 2022.

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This morning in metals news: U.S. steel prices have continued to decline; OPEC will continue its output increase schedule in February 2022; and, lastly, Alcoa at the end of last year announced plans to curtail production at its San Ciprián aluminum smelter in Spain.

Does your company have a steel buying strategy based on current steel price trends?

US steel prices continue to cool

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Although U.S. steel prices remain elevated, prices have cooled over the last few months, according to MetalMiner Insights data.

U.S. hot rolled coil, for example, closed last week at $1,587 per short ton, or down 8.3% month over month. Cold rolled coil, meanwhile, fell 3.2% to $2,019 per short ton.

Hot dipped galvanized is down 2.6% to $2,050 per short ton.

However, steel plate, critical for the energy sector, has bucked the general trend, particularly amid rising oil prices in Q4 2021. U.S. steel plate is up 1.6% month over month to $1,856 per short ton.

OPEC to maintain output increases

OPEC today announced it plans to continue previously agreed upon monthly output increases of 0.4 million barrels per day for February 2022.

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