Industry News

This morning in metals news, Ford Motor Co. announced an investment in its Chicago plants, industry group American Iron and Steel Institute (AISI) reiterated its support for the Trump administration’s Section 232 steel tariffs and finished steel imports through the first 11 months of 2018 were down 10.8% year over year.

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Ford Announces Chicago Investment

The Detroit automaker announced a $1 billion investment in its Chicago plants that it says will create 500 jobs.

“We are proud to be America’s top producer of automobiles. Today, we are furthering our commitment to America with this billion dollar manufacturing investment in Chicago and 500 more good-paying jobs,” said Joe Hinrichs, president of global operations. “We reinvented the Explorer from the ground up, and this investment will further strengthen Ford’s SUV market leadership.

AISI: Section 232 Trade Remedy is ‘Critical’

Last week, four members of Congress introduced the Bicameral Congressional Trade Authority Act, which seeks to curtail the executive branch’s — that is, the president’s — authority to impose Section 232 tariffs on imports by virtue of requiring Congressional approval.

The U.S. Chamber of Commerce came out in support of the proposal.

“The Chamber is deeply concerned by the unrestricted use of Section 232 to impose new tariffs,” said in a prepared statement. “Tariffs imposed on steel and aluminum imports have harmed U.S. industry and elicited retaliatory tariffs from our closest allies, inflicting serious harm on U.S. workers, farmers, and small businesses, and undermine U.S. efforts to build an international coalition of like-minded countries to combat the use of unfair trade practices.”

However, the American Iron and Steel Institute (AISI) has again expressed its support for Trump’s use of Section 232 to impose steel tariffs.

“The Administration’s trade actions and tax and regulatory reform policies, in addition to the strong economic climate enabled by those policies, have allowed the American steel industry to begin to recover after more than a decade of low capacity utilization and weaker earnings due to repeated surges in imports fueled by global steel overcapacity,” said Thomas J. Gibson, president and CEO of AISI, in a prepared statement.

“Capacity utilization at existing mills has increased in recent months to over 80 percent — levels not seen in the last ten years. Some shuttered plants are being re-opened, laid-off workers are going back to work and companies are making investments in new steel production facilities.”

Gibson added that “recent progress” will disappear if the tariffs are “prematurely terminated.”

“The massive overcapacity in steel still exists globally,” Gibson said. “And China in particular is producing steel at record levels – exceeding one billion net tons in 2018. This means there is plenty of excess supply that will flood into our market but for the continuation of the Section 232 tariffs.  The Section 232 trade remedy is critical to ensuring steel remains a vital asset for our national and economic security.”

Steel Imports Down 10.8%

Speaking of AISI, its recently released steel imports report showed U.S. steel imports last year through November were down 11% year over year.

In November, the U.S. imported 2.39 million tons of steel, which marked a 27.2% year-over-year decrease.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Meanwhile, through the first 11 months of 2018 steel imports reached 31.83 million tons, down 10.8% from the same period in 2017.

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This morning in metals news, ArcelorMittal  on steel demand in China (and elsewhere), copper lost ground after several upward sessions in a row and Mexico’s steel industry is not happy with the government’s decision to not renew steel safeguards protecting against steel from countries with which Mexico does not have a trade agreement.

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Chinese Steel Demand

ArcelorMittal expects the steel sector to come back down a bit after a run of strong prices, according to a Bloomberg report.

Unsurprisingly, much of that expected decline has to do with softening demand in China. Per the report, the firm expects steel demand growth to slow around the world,  and contract in China for the first time since 2015.

Copper Falls

After three straight upward sessions for London copper, the price fell back Thursday, Reuters reported.

LME copper fell 0.2% Thursday, according to the report. Meanwhile, Chinese markets remain closed over the Lunar New Year holiday break.

Mexico’s Steel Safeguards

According to an S&P Global Platts report, Mexican industry groups are not happy with the government’s decision to let a 15% steel safeguard lapse.

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The safeguard applied to imports from countries with which Mexico does not have a trade agreement, according to the report.

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This morning in metals news, copper rises for third straight session, President Donald Trump’s State of the Union addresses China, NAFTA and more, and Japan’s Nippon Steel & Sumitomo Metal Corp. reported its quarterly earnings.

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Copper Picks Up

According to Reuters, the copper price rose for the third straight session Wednesday.

With a March deadline approaching — after which Trump has pledged the U.S. will increase the tariff rate from 10% to 25% on $200 billion worth of Chinese goods coming into the U.S. — the report states another round of U.S.-China trade talks is scheduled next week in Beijing. As such, the copper price picked up, as it has when the news cycle shifts toward the easing of trade tensions between the two economic powerhouses.

Trump Talks China, NAFTA During State of the Union

After a delay due to the partial government shutdown, President Donald Trump delivered his State of the Union address before members of Congress Tuesday night.

As U.S.-China trade talks continue — with talks scheduled for next week in Beijing after a recent visit from Vice Premier Liu He to Washington, D.C. — Trump again cited U.S. trade gripes against China.

“We are now making it clear to China that after years of targeting our industries, and stealing our intellectual property, the theft of American jobs and wealth has come to an end,” Trump said. “Therefore, we recently imposed tariffs on $250 billion of Chinese goods — and now our Treasury is receiving billions of dollars a month from a country that never gave us a dime. But I don’t blame China for taking advantage of us — I blame our leaders and representatives for allowing this travesty to happen. I have great respect for President Xi, and we are now working on a new trade deal with China. But it must include real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs.”
On the North American Free Trade Agreement (NAFTA), Trump touted its pending replacement, the United States-Mexico-Canada Agreement (USMCA), which must be ratified by the legislatures of the three countries.

“Another historic trade blunder was the catastrophe known as NAFTA,” he said.

“I have met the men and women of Michigan, Ohio, Pennsylvania, Indiana, New Hampshire, and many other States whose dreams were shattered by NAFTA. For years, politicians promised them they would negotiate for a better deal. But no one ever tried — until now.

“Our new U.S.-Mexico-Canada Agreement — or USMCA — will replace NAFTA and deliver for American workers: bringing back our manufacturing jobs, expanding American agriculture, protecting intellectual property, and ensuring that more cars are proudly stamped with four beautiful words: made in the USA.

“Tonight, I am also asking you to pass the United States Reciprocal Trade Act, so that if another country places an unfair tariff on an American product, we can charge them the exact same tariff on the same product that they sell to us.”

Nippon Reports Quarterly Results

Nippon Steel & Sumitomo Metal Corp. released its third quarter fiscal year 2018 (Oct. 1-Dec. 31) financial results today, cutting its 2019 profit forecast by 6%, Reuters reported.

For Q3 2018, Nippon reported ordinary profit ¥256.4 billion, up from ¥225.4 billion for Q3 2017.

The firm’s steel segment picked up in sales and profit in Q3 2018.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

“In the Steelmaking and Steel Fabrication segment, domestic steel demand remained solid, especially for shipments to the automotive sector, and overseas steel demand as a whole was on a rising trend,” Nippon’s financial report states. “In the domestic steel markets, prices were at a generally high level against a background of stable demand, while prices declined in the overseas markets in the third quarter of fiscal 2018, due to uncertainty over China’s economic outlook.”

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This morning in metals news, U.S. steel mills’ capacity utilization rate inched up this past week, India’s steel sector looks to the government for protection from diverted steel, and the Office of the United States Representative (USTR) released its annual report on the WTO compliance of China and Russia.

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Steel Utilization Rate Hits 80.5%

Steel mills in the U.S. have operated at a capacity utilization rate of 80.5% through Feb. 2, according to this week’s report by the American Iron and Steel Institute (AISI).

Adjusted year-to-date production reached 8.95 million tons. Meanwhile, for the same period in 2017, steel mills produced 8.12 million tons at a 73.8% capacity utilization rate.

India’s Steel Sector Leery of Diverted Steel

According to a Reuters report, the Indian steel sector is looking for assistance from the Indian government via import duties to ward off diverted steel supplies.

Recently, the E.U.’s member states voted to impose new steel safeguards that will remain in place as late as July 2021. The move came as European producers worried steel supplies that would have been destined for the U.S. would be diverted elsewhere following the Trump administration’s Section 232 tariffs on steel and aluminum.

As for India, according to the Reuters report, Indian steelmakers have complained to the government that China, Japan, South Korea and Vietnam are allegedly dumping cheap steel in India, eating into domestic producers’ market share.

USTR Release Report on China, WTO Compliance

Pursuant to the U.S.-China Relations Act of 2000 — by which the USTR must present an annual report to Congress on China’s compliance with WTO rules and regulations — the USTR released its 17th report vis-a-vis China.

“The United States’ approach to China is more aggressive than in the past,” the report’s executive summary states. “Out of necessity, the United States is now using all available tools – including domestic trade remedies, bilateral negotiations, WTO litigation and strategic engagement with like-minded trading partners – to respond to the unique and very serious challenges presented by China. But the goal for the United States remains the same. The United States seeks a trade relationship with China that is fair, reciprocal and balanced.”

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The full report is available here.

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This morning in metals news, the White House released a statement about the recent round of trade talks with China, Zambia plans to enforce a copper import tax and Australian miner Fortescue says the impact of a dam breach at one of Vale’s Brazilian iron ore mines remains unclear.

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Trade Talks

The U.S. and China renewed ongoing talks on trade last week, as China’s Vice Premier Liu He led the Chinese delegation.

The White House released a statement last week on the progress of the talks and listed various topics of discussion, including forced technology transfer, intellectual property rights and the production of excess capacity due to market-distorting forces.

“While progress has been made, much work remains to be done,” the White House said. “President Donald J. Trump has reiterated that the 90-day process agreed to in Buenos Aires represents a hard deadline, and that United States tariffs will increase unless the United States and China reach a satisfactory outcome by March 1, 2019.  The United States looks forward to further talks with China on these vital topics.”

Zambia to Enforce Copper Import Tax

According to a Reuters report, Zambia’s mining minister said the country plans to enforce a 5% copper import tax.Zambia is Africa’s second-biggest copper producer.

Vale Impact

A Jan. 25 dam breach at Brazilian miner Vale’s Corrego do Feijao mine has left 134 dead, according to a recent Reuters report (with many people still missing).

After consideration of the significant human toll, iron ore watchers are also wondering what impact the disaster will have on that market segment.

However, according to Australian iron ore miner Fortescue, it’s still too early to tell.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

“We are not 100 percent clear yet on the net impact on supply of iron ore, but certainly there will be some impact,” Chief Executive Elizabeth Gaines was quoted as saying by the Hellenic Shipping News.

China is one of the most-watched economies in the world because its health ties in heavily with overall global economic growth. Further, there is a strong correlation between the Chinese economy as an industrial metals demand generator and the primary metals market outlook.

MetalMiner has always followed some Chinese indicators in order to completely understand and correlate metals markets. Let’s take a look at some indicators buying organizations may want to consider.

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Chinese Annual GDP Growth is Flattening

The International Monetary Fund (IMF) recently lowered its 2019 annual average global growth projection down to 3.5% from 3.7% on the heels of China’s growth slowdown: why?

China’s contribution to total global growth is strong, accounting for an estimated one-third of total growth annually.

Figure 1. China’s flattening growth curve may mean a continued sideways trend in base metals. Source: https://tradingeconomics.com/china/gdp-growth-annual

The Chinese Caixin Manufacturing Index Is Trending Downward

The China Caixin Manufacturing PMI, an index which measures manufacturing confidence, is presently trending negatively.

The most recent downward trend emerged with the United States tariff changes in early 2018; however, the Chinese Caixin PMI is still trending higher than it did in 2017.

Figure 2. Chinese Caixin Manufacturing Index, 2014 – 2018
Source: https://tradingeconomics.com/china/manufacturing-pmi

Figure 3. Chinese Caixin Manufacturing Index – Previous 14 Months
Source: https://tradingeconomics.com/china/manufacturing-pmi

While Chinese manufacturers’ confidence appears lower overall as measured by the PMI, the bigger picture of Chinese economic confidence is more nuanced.

The Manufacturing PMI showed weaker sentiment when compared to other major sectors of the Chinese economy, while the Industrial Production and Mining Indexes showed improved confidence over the prior reporting period. In terms of the automotive industry, car production figures dropped while total vehicle sales and car registrations went up in absolute numbers.

Honson To, chairman of KPMG in the Asia-Pacific region and China, also finds reason to remain optimistic over China’s growth prospects this year, namely in the areas of domestic infrastructure projects and high-tech manufacturing. He expects infrastructure investments to contribute to continued Chinese growth, especially in the areas of high-speed railways and roads. Additionally, he projects further growth in the advanced manufacturing sector during 2019.

Beyond the direct stimulus impact, these upgrades to infrastructure will benefit the country by strengthening regional transportation across the vast country. While China boasts the world’s largest population, in terms of density it is much further down the list; therefore, improved regional infrastructure should provide a domestic stimulus for the Chinese national economy.

On the other hand, there will likely be a lag by up to a year in terms of how these domestic infrastructure projects will impact growth numbers, given the nature of such projects, as pointed out by Alistair Ramsay, a research manager with Fastmarkets, during a Jan. 25 BrightTalk presentation on the steel sector in China entitled “Ferrous Metal, Full Steam Ahead?

The Chinese Stock Market is Showing Weakness

Figure 4. The China Shanghai Composite Stock Market Index declined throughout 2018.
Source: https://tradingeconomics.com/china/stock-market

A look at the Shanghai Composite Stock Market Index shows a trend toward declining stock prices throughout 2018.

Additionally, a recent Goldman Sachs analysis of 20 well-traded stocks shows more weakness than expected coming from the domestic side of the Chinese economy, stating that the slowdown is visible in the data from the 20 stocks selected for the analysis.

Weakened performance in the consumer and producer markets has led to much speculation that the domestic slowdown has hit to a greater extent than expected.

Domestic pessimism over the Chinese economy’s health due to the U.S.’s aggressive tariff policies is viewed as the key issue, as tariffs are effectively curbing exports and slowing overall growth.

This, in turn, is impacting the U.S. through poorer market performance (take, for example, Apple’s recent off-target profit estimates resulting from weaker Chinese domestic demand for iPhones).

Foreign Direct Investment Inflows into China Remain Stable

As a factor potentially in support of China’s growth in the sectors identified by Honson, foreign direct investment (FDI) throughout the first half of 2018 (the latest dates for which figures are available) remained stable against a backdrop of falling FDI worldwide across both developed and developing countries.

According to the latest figures from the Chinese Ministry of Commerce, “FDI went up 3 percent year-on-year to $135 billion in 2018, while that of the world’s total and developed countries slumped 41 percent and 69 percent, respectively, in the first half of 2018.”

The strength of FDI in China is only second to the United States, according to another recent analysis. It should be noted that these figures, like those of the Chinese government, do not reflect the latter months of 2018 and are based on a 10-year analysis.

Others are more critical of the FDI situation in China, pointing out that even Chinese investors may prefer to invest elsewhere given a restrictive domestic investment environment resulting from recent Chinese government policies.

According to Baker McKenzie, Sweden, the UK, Germany and France were the top destinations for Chinese investment in the first half of 2018.” The move toward heavier Chinese investment in the E.U. was also spurred on by the trade situation with the U.S., according to the same report.

The Yuan Regained Weakness Against the Dollar in 2018

Figure 5. Long-term Comparison of the USDCNY – Index of the U.S. Dollar Against the Chinese Yuan
Source: https://tradingeconomics.com/china/currency

Chinese policymakers are well-known for their currency price control.

Once the yuan was devalued in 1994, the currency stayed under very tight government control, with very little change against the dollar for many years.

Quantitative easing is a popular technique; the Chinese government is well-known for injecting liquidity in the banking system to control the value of the currency.

Figure 6. The Appreciation of the Yuan Against the Dollar As a Result of Trade Policies During 2018 Quickly Reversed

The long-term effect of China’s intensive depreciation policy is to make steel and aluminum products cheaper.

Even in the current trade environment with applicable tariffs, steel and aluminum are still cheaper when compared with buying them in the U.S. due to the currency exchange rate between the U.S. and China. This situation is more or less continuing in an unmitigated fashion, as the Chinese government continues to exert artificial controls on the exchange rate. 

So What Does That Mean for Metals?

If it’s not a stock market boom year, we might expect the metals market to continue to trend sideways, if not head upwards.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

However, if the dollar stays strong, that should offset some of the gain — metals may see lower prices and then still fall in line with the sideways trend. This question is still undecided and is wrapped into the story of trade between the U.S. and China.

Beyond the strong U.S. dollar, the global production outlook appears moderate.

To read more about China’s growth in historical context, see Stuart Burns’ recent article.

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Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner:

  • Global crude steel production rose 4.6% year over year in 2018, while China’s piece of the pie grew.
  • A dam breach at Brazilian miner Vale’s Corrego do Feijao iron ore mine has left more than 100 dead and hundreds remain missing.
  • Take a listen to MetalMiner’s latest podcast episode, this time on a word that seems to be picking up steam: reshoring. MetalMiner chats with Harry Moser of the Reshoring Initiative.
  • U.S. steel mills hit a capacity utilization rate just over 80% for the year through Jan. 26.
  • AK Steel recently announced its 4Q 2018 and full-year financial results, also announcing it will shutter its already mostly idled Ashland Works by the end of the year.
  • Who really wins after the exchange of metals tariffs between the U.S. and Canada, two longtime allies?
  • India moved just past Japan into the No. 2 spot of top global steel producers last year.
  • U.S. Steel, Nucor Corporation and Tesla all reported their quarterly results earlier this week.
  • Gold has previously been losing a bit of its sheen, but it seems to be shining one again (or, at least, on its way back).

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This morning in metals news, President Donald Trump signed an executive order Thursday pushing for increased use of domestic materials and labor, miner Glencore released its full-year production results for 2018, and the latest on the deadly dam breach at Vale’s Corrego do Feijao mine.

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Buying, Hiring American

As part of a push to promote the use of U.S.-made materials and U.S. labor, Trump signed an executive order seeking to “strengthen Buy-American principles.”

The American Iron and Steel Institute (AISI) was among the industry groups to react to the signing.

“Strong domestic procurement preferences for federally funded infrastructure projects are vital to the health of the domestic steel industry, and have helped create manufacturing jobs and build American infrastructure,” AISI President and CEO Thomas J. Gibson said.

“This latest executive order builds upon President Trump’s April 2017 executive order on this topic, which resulted in stronger compliance with our domestic procurement laws, including Buy America requirements, and a marked reduction in waivers to those laws. We applaud President Trump for once again affirming his commitment to the fullest possible implementation of our domestic purchasing laws in signing this executive order today.”

Glencore Releases 2018 Production Results

Glencore’s copper production hit 1.45 million tons in 2018, up 11% from 2017.

Cobalt production, meanwhile, hit 42,200 tons, up 54% from 2017.

Zinc production was flat from 2017, while nickel production picked up 13%.

Vale Dam Breach

The latest local estimate of the death toll stemming from a dam breach at Vale’s Corrego do Feijao mine in Brazil has been moved up to 110 dead, with 238 missing, according to Reuters.

In addition, according to the Reuters report, a local newspaper published an internal Vale study showing the miner was aware nearby areas were at risk if the tailings dam burst.

The tailings dam burst last Friday, marking the second such event at a Vale mine in recent years; previously, a late 2015 dam breach killed 19 at a mine jointly operated by Vale and Australian miner BHP.

On Friday, the miner released a statement on its emergency preparedness.

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“Vale states that all its dams have a Emergency Action Plan for Mining Dams (PAEBM, Plano de Ação de Emergência de Barragens de Mineração), being in compliance with the Brazilian law,” the release states. “This plan is based on technical studies of hypothetical situations in case of dam breach. The PAEBM foresees what will be the flooding area and also the self-saving zone.”

Gold has been the metal to hold these last few months. While the base metals index has been at best trading sideways — and in many instances, gradually weakening — gold has been making a comeback.

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Even before Fed announcements in January 2019, gold had been rising during the second half of 2018, reaching a peak in January of over USD $1,320 per ounce (its highest level since May 2018).

CNBC quotes an ABN AMRO analyst who says “Supporting gold is the double whammy of lower dollar and the (Fed decision on) U.S. interest rates.”

It’s true to say there is an inverse relationship between the greenback and the price of gold; as the dollar falls, it makes dollar-denominated commodities like gold cheaper for foreign investors and the price tends to firm. In addition, if interest rates weaken, the gold price can firm as lower interest rates reduce the opportunity cost of holding non-interest-earning gold.

The Fed’s decision not to raise rates — with “weakened” economic conditions as the justification for putting rates on hold — is a position the market now sees extended well into 2019 (not only reduced interest rate expectations, but the value of the dollar).

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, was at the highest price since June, according to Reuters, climbing 4.6% so far this month. That gain marked the biggest monthly gain since September 2017.

But investor interest has not been the only driver of demand.

In an effort to diversify out of dollar holdings, central banks — particularly emerging-market central banks — have been selling U.S. Treasuries and buying physical gold.

According to the Financial Times, central bank buying of gold reached its highest levels for almost half a century last year as Russia, Turkey and Kazakhstan led combined central-bank purchases of a net $27 billion worth of gold after sales by Australia, Germany, Sri Lanka, Indonesia and Ukraine, which sold a combined 15.6 tons are deducted.

Russia was by far the largest buyer, adding 274.3 tons last year, bringing official gold reserves to 2,066 tons, worth some $87 billion. At this level, Russia holds some 18% of its total reserves in gold. But if that sounds like a lot, compare it to Germany at 69% and the U.S. at 74%.

All these central banks have been selling dollars to fund their purchases, a move that has seen the greenback as a share of central bank reserve currencies fall to a five-year low in Q3 last year. Some eastern European countries joined the buying spree, making this year’s net purchases the highest since the U.S. moved off the gold standard in 1971, Reuters noted.

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There is nothing to say this has run its course. Heightened trade uncertainty and slowing global growth will continue to create favorable conditions for gold demand, both from investors and central banks, in 2019.

In times of uncertainty, gold has not lost it role of safe haven.

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This morning in metals news, copper gains momentum, Japan’s steel federation thinks domestic output will grow this year and U.S. Steel will have to pay at least $40 million to repair one of its facilities after a fire.

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Copper Reaches Seven-Week High

Copper prices surged to a seven-week high on Thursday, Reuters reported, inversely with a dropping U.S. dollar.

LME copper jumped 0.5% to hit $6,167 per ton, according to the report.

Japanese Domestic Output

The chief of Japan’s steel federation said Japan’s domestic steel output will likely be higher, aided by demand from the 2020 Tokyo Olympics, according to a Reuters report.

In 2018, Japan’s steel output slipped 0.3% on a year-over-year basis, as India overtook it for the No. 2 spot on the list of the world’s top steel producers.

U.S. Steel to Repair Clairton Plant After Fire

U.S. Steel announced this week that it would need to spend at least $40 million on repairs after a fire at its Clairton Coke Plant (just south of Pittsburgh), the Pittsburgh Post-Gazette reported.

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The fire ran through the building on Christmas Eve, leading to county officials to issue air quality alerts.