Market Analysis

The weeklong blockage of the Suez Canal — coming as it does on top of a year of escalating ocean freight rates for the Asia-European trade, port congestion in both regions and shipping delays — has inevitably prompted debate about alternatives.

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Suez Canal, then and now

Suez Canal

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Not that you would imagine there were many other options. The Suez Canal was first dug in the late 1860s. The canal officially opened Nov. 17, 1869, at huge expense and effort. Because the alternative route around the Horn of Africa took so much longer, the canal was, in today’s parlance, a no-brainer.

Nevertheless, some vessels — those approaching the back of a very long queue in the Indian Ocean at the weekend — did set off south around Africa. However, they will probably add some two weeks to their voyage in the process. That means emissions of thousands of tons of CO2 and the cost of thousands of tons of bunker fuel.

But, like taking a detour to avoid a traffic jam, you at least feel like you are moving, even if you have to detour five times the distance.

Shipping alternatives

The alternatives, though, sound at first sight even more outlandish.

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Continued tight supply for hot rolled coil in Western Europe has further pushed up prices for the flat product over the past 10 days.

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Hot rolled coil heats up

Some producers’ offer prices from late last week are now at least €900 ($1,060) per metric ton exw. Meanwhile, delivery times extend as far out as October, market participants said.

Cold rolled coil is on offer for €980 ($1,155), they added.

Western European steel factory

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“It’s impossible to get anything before June,” one trader said.

Hot rolled coil offers in mid March reached €850-900 ($1,000-1,060) for May rolling and June delivery. However, traders warned then that the price and lead times were not certain and could rise further.

Import offers for hot rolled coil are now $900-910 cost and freight (CFR) for European ports. That is up from $890-900 transacted earlier in March for material from India and Japan, respectively for May and June delivery, sources also noted.

Import prices could also face more increases, a second trader warned.

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strike

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The United Steelworkers union Monday announced a strike at nine Allegheny Technologies Inc. (ATI) facilities, citing what it calls “unfair labor practices.”

The ATI strike, which began at 7 a.m. EDT Monday, marked the first at ATI since 1994, according to media reports.

In addition, USW spokesperson Tony Montana told MetalMiner the strike involves workers at plants in:
  • Pennsylvania in Brackenridge, Latrobe, Natrona Heights, Vandergrift and Washington
  • Lockport, New York
  • Louisville, Ohio
  • New Bedford, Massachusetts
  • Waterbury, Connecticut

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USW announces ATI strike

“We are willing to meet with management all day, every day, but ATI needs to engage with us to resolve the outstanding issues,” USW International Vice President David McCall said in a prepared statement. “We will continue to bargain in good faith, and we strongly urge ATI to do start doing the same.

“Through generations of hard work and dedication, Steelworkers at ATI have earned and deserve the security of a union contract. We cannot allow the company to use the global pandemic as an excuse to reverse decades of collective bargaining progress.”

USW said negotiations with ATI began in January 2021. The union claimed the company “sought major economic and contract language concessions” from its roughly 1,300 union members. Furthermore, the union said members have not had a wage increase since 2014.

Meanwhile, the union had announced its intention to strike Friday, March 26.

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Suez Canal

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As the days went by and the disruption from the blockage of the Suez Canal by the container vessel Ever Given increased, the implications became more and more severe.

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Not all of those 360 vessels backed up waiting for the vessels to be freed are containing washing machines and laptops.

Suez Canal disruption

Some have live cargoes on board. Others have have ripening fruit. Lost cargoes will be significant, but may be worse for manufacturers will be the ongoing disruption.

ShippingWatch estimates it will take a week or more to clear the vessels back up into the Red Sea and Mediterranean.

But the damage has already been done.

Due to the non-arrival of vessels in both Europe and Asia, there will be trips out of both regions that are already being canceled (so-called blank sailings), because the container ships do not reach the ports on time and cannot unload and get new cargoes on board.

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Three years have passed since former President Donald Trump imposed Section 232 tariffs on steel and aluminum.

The administration cited national security concerns when imposing the tariffs. In addition, it aimed to raise capacity utilization of the US steel and aluminum sectors. (For the week ending March 20, US mills reached a steel capacity utilization rate of 77.3%.)

steel tariff

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Some countries received exemptions and domestic buyers have been able to win exclusions, which have mitigated the strength of the tariffs.

Metals consumers have expressed their opposition to the tariffs. For example, the Coalition of American Metal Manufacturers and Users (CAMMU) called for an end to the tariffs last year, citing the negative economic impact of the COVID-19 pandemic.

However, a recent review of the tariffs offered a more positive view.

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EPI: Section 232 tariffs produced ‘near-immediate benefits’

According to a recent report this week by the Economic Policy Institute (EPI), the Section 232 tariffs offered “near-immediate benefits.”

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The aluminum market is undeniably tight, as consumers are having to wait months for metal and the Midwest Premium rises. In some locations — Europe, in particular —  consumers of rolled plate cannot secure new production space until well into Q3.

aluminum ingot stacked for export

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Some mills have even pulled out of quoting for new business customers in 2021. Anti-dumping legislation on flat rolled products from China and a fire last year at a Russian rolling mill have combined to dramatically restrict supply options for consumers.

As a result, prices have moved up.

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US aluminum situation

The US is no better.

Semi-finished product prices are rising and lead times are extending. It is convenient to blame the recent decision to apply substantial anti-dumping duties on 18 countries supplying the US with flat rolled commercial aluminium. The move has severely distorted the supply market. A significant number of major supplying countries, including Germany, South Korea and Turkey, are shut out by the high tariffs.

However, the tariffs are not the only reason the market is tight.

As intended, the supply chain has now switched focus to domestic — or, at least, USMCA members’ North American mills. The result is lengthening lead times and price rises.

Some consumers have asked why the LME primary metal price hasn’t risen further in view of the tight market. The reality is what we are seeing is a distorted supply market, not a global primary metal shortage.

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bull market

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Industrial metal buying organizations are in a difficult spot these days, as commodities are entrenched in a bull market.

After the initial demand hit that commodities took on at the end of Q1 2020 with the outset of the COVID-19 pandemic, materials prices have skyrocketed. Lead times have lengthened and demand for everything from automobiles to homes to electronics picked up around the middle of the year.

Since then, metals prices have been on a bullish run, putting pressure on buying organizations.

On Wednesday, March 24, MetalMiner hosted a webinar titled “When Will the Metals Bull Market End? (Am I Well Positioned to Get All of the Cost-Downs When Prices Fall?).” During the 30-minute session, MetalMiner CEO Lisa Reisman, Editor-at-large Stuart Burns and Vice President of Business Solutions Don Hauser walked buyers through the current state of commodities markets and strategies for how buyers should approach their metals spend in preparation for when prices eventually come down.

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Bull market

To metals buyers’ chagrin, prices remain elevated and supply is tight.

When polled, 44% of webinar participants said carbon steel has been their most budget-busting metal this calendar year. Meanwhile, 24% said stainless steel, 20% said aluminum and 12% said copper.

In addition, 66% of participants indicated they are also seeing price increases for value-add items (for example, coatings, gauge and width adders, and additional processing).

US steel prices, for example, have been relentless in their rise. Hot rolled coil closed earlier this week at $1,271 per short ton, up nearly 9% from a month ago. After a modest recovery in May 2020, hot rolled coil dipped again, falling as low as $454 per short ton in late August.

The price has come a long way since then.

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battery energy storage

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This morning in metals news: the Energy Information Administration forecasts a “significant number” of battery energy storage systems will come onto the US electricity grid; meanwhile, miner Rio Tinto announced a partnership with renewable energy technology company Heliogen; and, lastly, global copper mine production levels came in about flat compared with 2020.

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EIA forecasts increase in battery energy storage

The Energy Information Administration (EIA) today projected an increase in battery energy storage systems on the US power grid.

In its Annual Energy Outlook 2021, the EIA projected 59 GW of battery storage will serve the US power grid in 2050.

“Battery storage systems store electricity produced by generators or pulled directly from the grid, and they redistribute that electricity later,” the EIA noted. “They typically charge, or store, electricity during hours of the day with relatively high energy supply, low energy demand, and low power prices. The batteries are then available to discharge electricity during hours with low supply, high demand, high power prices, or when the grid needs backup capacity for reliability.”

Rio Tinto reaches agreement with Heliogen

Miner Rio Tinto announced it had reached an agreement with renewable energy technology company Heliogen.

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capacity utilization

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The US steel sector’s capacity utilization rate has consistently posted gains since a trough last spring at the outset of the COVID-19 pandemic.

This past week, however, the capacity utilization rate fell slightly.

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Capacity utilization dips to 77.3%

The US steel sector’s capacity utilization rate fell to 77.3% for the week ending March 20, the American Iron and Steel Institute reported this week.

Steel output during the week totaled 1.75 million net tons. The figure marked an increase of 0.7% year over year. Meanwhile, output declined 0.5% from the previous week, when capacity utilization reached 77.7%.

As for the year to date, production reached 19.6 million net tons. Capacity utilization during the period reached 76.8%. Production during the period fell 6.2% from the same time frame in 2020, when the rate reached 79.6%.

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Tangshan steel plant

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The recent curbs on steel making by the local government in one of China’s largest steel-producing cities, Tangshan, may have a cascading effect on steel procurement & demand, as well on iron ore supplies, some experts believe.

The Tangshan restrictions are in effect from March 20 to Dec. 31, 2021. Among other things, the restrictions penalize steel mills there that fail to meet emission control regulations.

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Tangshan part of countrywide effort

The curbs are in line with China’s fresh efforts to cut emissions meet carbon-neutrality targets. China aims to reach carbon neutrality by 2060.

Already, iron ore prices felt effects from the restrictions. Meanwhile, the long-term effect on the import-export of steel from China remains to be seen.

Daily iron ore consumption in Tangshan is also likely to drop drastically. The restrictions had led to the drop in iron ore futures but boosted hot-rolled coil (HRC) futures.

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