Market Analysis

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A lack of local availability, plus anti-dumping measures on some third-country imports into the European Union, have further pushed up hot rolled coil prices in Western Europe.

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Hot rolled coil price surge

Offers for the flat rolled product from Western European mills are now €850-900 ($1,015-$1,070) per tonne ex works for May rolling and June delivery, traders told MetalMiner. That moved up by an average one-third from the €750 ($894) that producers were offering in early February.

Production cuts by Western European mills could, however, make it difficult to secure finished product at those times and prices.

“You cannot buy a single tonne,” one trader said about acquiring hot rolled coil from Western European mills at present.

Rises in raw material prices and reported difficulties in securing ferrous scrap are also pushing up prices, a second trader said.

Hot rolled coil is used in construction applications. The flat rolled product is also used as feedstock for welded pipe production. It’s also used for rolling cold rolled coil and and to produce further downstream.

Anti-dumping measures, Chinese demand

Also supporting prices on the Western European domestic market are EU anti-dumping measures on HRC from Turkey and China. In addition, high demand for finished product from China has offered support, sources said.

“The Chinese [economy] is doing very well,” the first trader said.

High hot rolled coil demand in Southeast Asia for building and infrastructure projects is also supporting Western European prices, sources noted.

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Seaborne iron ore prices hit a 10-year high this month at $178 per ton before profit taking. Investors bet on strong steel demand and robust consumption in top consumer China.

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Iron ore price and pollution in China

But following the release of details in China’s new Five-Year Plan calling for wide-ranging and ambitious targets to reduce environmental pollution, iron ore prices experienced a sharp sell-off. Investors took profits at the prospect that steel production could be restricted by Beijing in an effort to reduce pollution.

Steelmaking is a major source of pollution in China. The steelmaking process is estimated to account for about 15% of the country’s total emissions.

So it is hardly surprising investors took profits at the prospect of the steel industry potentially facing significant environmental controls and increased efforts by Beijing to close excess steel production.

EAF acceleration

What the Five-Year Plan may well accelerate is adoption of electric arc furnace (EAF) steelmaking as blast furnace operators switch to scrap consumption to reduce pollution.

EAFs are a significantly less polluting production method than traditional blast furnaces. However, that is only the case if the electric energy source is not totally from coal. Unfortunately, much of China’s still is.

Still, if pollution is measured at the point of production rather than mine to finished product, EAF will be a winner.

Beijing has already reclassified and eased steel scrap imports late last year, possibly with an eye on encouraging adoption of such less-polluting technologies.

Higher-purity iron ore

There will likely also be greater use of high-purity iron ore and pellets, with Fe purity percentages in the mid- and upper-60s. Both offer a route for blast furnace operators to reduce their pollution levels. For more modern, efficient mills they can mitigate penalties or meet threshold targets.

The premium for high-grade iron ore is already a record above low-purity material. This is in part because supply sources are limited. Those with the highest purity resources are charging a premium. One reason why imported iron ore volumes are so high — domestic production is generally of low Fe purity material, which consumers have shunned more and more.

Peak iron ore price?

For the time being, mills are making good money and can afford the cost.

However, if steel demand were to drop this year, iron ore prices could see further falls.

As such, have we reached peak iron ore?

The short answer? Maybe. Much will depend on how enthusiastically (and how quickly) Beijing and state governments apply the edicts of the new Five-Year Plan. In addition, it will depend on how quickly last year’s stimulus measures begin to lose their impact on the economy.

China’s bounce-back has been impressive. Beijing, however, is doing a lot behind the scenes to slow the growth of debt and give the property market a gentle landing.

For the first time in decades, the US could have a higher rate of growth this year than China.

But the US is not a market for seaborne iron ore, so China remains the principal driver of price direction.

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This morning in metals news: ArcelorMittal announced a series of low-carbon initiatives; meanwhile, US import prices increased in February; and, lastly, the aluminum price has picked up this week.

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ArcelorMittal unveils XCarb™ low-carbon initiatives

ArcelorMittal today announced a trio of new low-carbon initiatives under the umbrella of what it is calling XCarb™.

“XCarb™ will ultimately bring together all of ArcelorMittal’s reduced, low and zero-carbon products and steelmaking activities, as well as wider initiatives and green innovation projects, into a single effort focused on achieving demonstrable progress towards carbon neutral steel,” ArcelorMittal said.

The program will include green steel certificates for customers.

“Across our ArcelorMittal Europe – Flat Products operations, we are investing in a broad range of initiatives to reduce carbon emissions from the blast furnace,” ArcelorMittal said. These initiatives range from our flagship Smart Carbon projects, such as Torero (transforming biomass into bio-coal to replace the use of coal in the blast furnace) and Carbalyst (capturing carbon-rich blast furnace waste gas and converting it into bio-ethanol, which can then be used to make low-carbon chemical products) to capturing hydrogen-rich waste gases from the steelmaking process and injecting them into the blast furnace to reduce coal use.”

In addition, the program includes recycled and renewably produced “pioneering products.”

Lastly, XCarb™ will also include an innovation fund. ArcelorMittal says it will invest $100 million annually into the fund. The fund will go toward “groundbreaking companies developing pioneering or breakthrough technologies that will accelerate the steel industry’s transition to carbon neutral steelmaking.”

Import prices rise

In addition to today’s ArcelorMittal news, US import prices picked up 1.3% in February, the Bureau of Labor Statistics reported.

Import prices gained, in part, due to higher fuel prices.

Prices for import fuel rose 11.1% in February after rising 9.0% in January.

Aluminum price gains

The LME three-month aluminum price closed Tuesday at $2,201 per metric ton.

A week ago, LME three-month aluminum reached $2,169 per metric ton.

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Despite howls of protest from consumers, the Biden administration has doubled down on the Trump administration’s trade barriers with its latest move on aluminum tariffs.

The administration recently slapped semi-finished flat rolled aluminium anti-dumping duties on 18 countries supplying the US market.

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Aluminum tariffs

Previous administrations’ focus on China — first on extrusions in 2011 and then foil and sheet in 2018 — succeeded in bringing down imports from 620,000 metric tons in 2017 to 170,000 tons last year, Reuters reported.

However, the wider Section 232 10% tariff is so riddled with exclusions and special exemptions that imports from the rest of the world have continued to make up a significant proportion of the market supply landscape.

Imports of sheet, plate and strip totaled 1.3 million metric tons in 2019. That represented about 62% of total aluminum product imports that year, according to Reuters. Although volumes shrunk sharply to 836,000 tons last year, this was due to the broader COVID-19 disruption to the U.S. manufacturing sector.

Total semis imports last year fell by 20%. Domestic shipments dropped by only 13% through November, suggesting the imposition of preliminary duties in October was already impacting buyers’ decisions.

According to Reuters, the new duties hit seven of last year’s top 10 product suppliers to the U.S. market, including South Korea, Germany and Turkey.

Canada, Saudi Arabia avoid aluminum tariff

The duties spared Canada, however, from which imports increased by 17%. They also spared Saudi Arabia, where Alcoa retains a close relationship with the Ma’aden smelter and rolling mill, despite having divested its 25.1% shareholding in 2019.

That Alcoa and its Saudi partner should essentially get an exemption comes as no surprise.

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This morning in metals news: the European Parliament recently voted on a resolution for a Carbon Border Adjustment Mechanism; China’s steel output reached nearly 175 million tons in January and February; and the US CRC price has widened the spread with the China CRC price.

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European Parliam passes Carbon Border Adjustment Mechanism

Last week, the European Parliament passed a resolution for a Carbon Border Adjustment Mechanism.

“The European Parliament has sent a clear signal that a workable carbon border measure is of critical importance for the transition of industry towards climate neutrality,” said Axel Eggert, director general of the European Steel Association (EUROFER). “The measure must fill the gap of the carbon cost differential with global competitors and imports instead of replacing or reducing current levels of carbon leakage protection.”

Eggert added straight replacement of free carbon dioxide certificates for a border measure would be “bad policy.”

“Primary steelmaking makes up three-fifths of European production, and such producers would face carbon costs at least twenty times higher than global competitors exporting to the EU,” Eggert added. “This vote shows that the Parliament intends to defend manufacturing and jobs in Europe.”

China churns out 175M tons of crude steel in January, February

The Chinese steel sector produced 175 million tons of steel in January and February, according to National Bureau of Statistics data reported by Reuters.

Average daily output during the aforementioned period reached 2.97 million tons per day. The average came in higher than daily output in December 2020 and January-February 2020, Reuters reported.

US CRC widens gap with China CRC

The US CRC price has become increasingly expensive relative to the China CRC price.

US CRC closed Monday at $1,429 per short ton, or up 8.04% from a month ago.

Meanwhile, China CRC closed at $850 per short ton, for a spread of $579.

In mid-February, the spread stood at $523.

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The Stainless Monthly Metals Index (MMI) rose by 4.3% for this month’s reading, as news of a supply deal by China’s Tsingshan Holding Group helped push the nickel price downward.

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Nickel price falls on Tsingshan supply deal news

The nickel price, like most other base metals, surged through the first two-thirds of February.

The LME nickel price reached as high as $19,722 per metric ton as of Feb. 21.

From there, however, the price dropped, particularly after news of supply deals by China’s Tsingshan Holding Group.

Tsingshan will provide a total of 100,000 metric tons of nickel matte to Huayou Cobalt and CNGR Advanced Material, Reuters reported.

“Nickel’s narrative has largely been predicated on a shortage of battery-grade metal driven by EV demand,” MetalMiner’s Stuart Burns explained earlier this month.

“However, Tsingshan’s supply contract and capacity announcements suggest there will be sufficient supply. As a result, the nickel market reflected a sharp rethink of the deficit view.

“Demand undoubtedly remains robust for nickel. Its medium- to longer-term outlook remains positive on the back of stainless and battery demand.”

A price drop at some point was expected.

“It’s expected that the market would see some price corrections,” MetalMiner CEO Lisa Reisman explained. “Now we are looking closely to see if prices break support levels or hold. Most of the base metals appear to have held onto their support, with the exception of nickel.

“However, the falling nickel price will not result in more availability or shorter lead times. In fact, more fabricators and OEMs have started to pursue import options to help alleviate supply chain hiccups.”

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The Raw Steels Monthly Metals Index (MMI) ticked up 2.0% for this month’s index reading, as the pace of steel price rises has started to slow.

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Steel price gains appear to slow

Steel price rises have continued, much to the chagrin of buyers battling for hard-to-get supply.

However, the pace of the price gains has started to slow.

“The percentage of increase week over week seems to be getting smaller,” said Don Hauser, MetalMiner vice president of business solutions. “This may be a sign the peak is near. Short term, it is likely going to continue to rise, just at a slower pace. Steel prices may remain supported unless/until new production capacity comes back onstream, and some will get added this year.” 

Overall, it’s a difficult time for buyers.

“Unforecasted material is still nearly impossible to find unless it’s by chance,” Hauser added. “Even forecasted material can be difficult to receive on time.”

Capacity utilization hits 77.4%

Speaking of supply and the steel price, steel capacity utilization reached 77.4% for the week ending March 6, the American Iron and Steel Institute reported.

The US steel sector churned out 1.76 million net tons of steel during the week, up 0.3% from the previous week but down 0.3% year over year.

Production for the year to date totaled 16.11 million net tons, or down 7.6% compared with the same time frame the year before. (Notably, this period in 2020 does not yet cover the beginning of lockdown restrictions related to the pandemic.)

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The Copper Monthly Metals Index (MMI) picked up by 12.6% for this month’s reading, as the copper price surged to a 10-year high last month.

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Copper price rise

The copper price picked back up in February after China’s Lunar New Year celebration (a traditionally slower time of year for economic activity in the country).

The LME three-month price surged to $9,563 per metric ton, reaching an approximately 10-year high.

Since then, however, the price has pulled back. The three-month price closed Thursday at $9,048 per metric ton.

“This is a classic overbought market in which traders sought to take some profits,” MetalMiner CEO Lisa Reisman explains. “With the exception of tin, all of the non-ferrous metals traded down. And though nickel looks weaker (as does lead), most of the non-ferrous metals remain in their uptrend, as does the ferrous metals complex.”

Earlier today, MetalMiner’s Stuart Burns touched on the trajectory of oil prices. As readers of our Annual Outlook — for which we released our March update earlier this week — know, oil prices are a key economic factor MetalMiner considers when analyzing commodities markets.

“Copper has taken much of its cue from oil prices, which remain at or around $65/barrel along with strong demand buoyed by the stimulus package just passed in the US House of Representatives,” Reisman adds. “Moreover, copper has very strong fundamentals — strong demand and not as much supply — which forms the basis of the copper narrative.” 

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This time last year, Saudi Arabia all but announced war on America’s fracking industry and major OPEC+ partner Russia by releasing a flood of oil onto the world market just as the pandemic was getting underway.

The pandemic, among other impacts, led to a plunge in oil demand. The unprecedented collapse in prices took oil prices down to an 18-year low.

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Oil price plunge and rise

Reality set in as revenues collapsed.

Within months, led by Saudi Arabia, the OPEC+ group agreed to production cutbacks of some 10 million barrels a day. The move kickstarted what has since been a sustained price recovery despite still weak demand.

Since then, output has been allowed to rise. However, some 7 million barrels per day of cutbacks remains in place. Earlier this month, OPEC agreed on only a modest increase of 130,000 barrels  per day for Russia and 20,000 per day for Kazakhstan. The rest of the group would forgo the planned 1 million barrel per day increase previously planned from April, the Financial Times reported.

Oil price support

Two further factors have supported prices this month.

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The Aluminum Monthly Metals Index (MMI) picked up 6.3% for this month’s reading, as the China aluminum sector could get a price boost from the 14th Five-Year Plan. Furthermore, the Department of Commerce made anti-dumping and countervailing duty determinations on aluminum sheet.

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China’s 14th Five-Year Plan

By virtue of its having the largest aluminum and steel sectors in the world, China also faces a massive pollution problem.

Particularly given coal’s ongoing prevalence in the country, pollution is a problem Beijing is seeking to solve.

While some might question if the latest five-year plan goes far enough on climate, it is, at least, a step in the right direction.

As MetalMiner’s Stuart Burns explained yesterday vis-a-vis steel, the impact of the plan will be similar for aluminum.

In short, it could mean a tightening of supply and potentially rising prices in the medium term.

“The environmental targets are part of the new Five Year Plan and, as such, will evolve over the coming years rather than be applied over coming months,” Burns noted regarding the plan’s impact on aluminum. “But it may add a little fuel to investors’ interest in a tightening supply market narrative that underpinned copper and nickel prior to the recent selloff, and to a lesser extent that for aluminum.”

Overall, Burns said he expects China’s latest plan to be supportive rather than outright bullish in the short to medium term.

Xinhua, the state-run news agency, reported this month that China’s 14th Five-Year Plan will promote “green development and facilitate the harmonious co-existence between human and nature during the 14th Five-Year Plan (2021-2025) period, according to a government work report submitted Friday to the national legislature for deliberation.”

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