Tag: Chinese Steel

Week-in-Review: Trump Gets Tough On Steel Imports but Does China Even Care?

Week-in-Review: Trump Gets Tough On Steel Imports but Does China Even Care?

This week, President Donald Trump and the Department of Commerce used executive orders, new anti-dumping investigations, memoranda invoking national security concerns and other executive branch tools to get tough on foreign steel imports.
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Although Trump or Commerce Secretary Wilbur Ross never overtly stated it, the target is clearly China and the global steel overcapacity that it’s the main culprit in creating. China’s steel exports hit a record 112.4 million metric tons in 2015, then dropped slightly to 108.49 mmt last year, as Chinese mills have been chastened by threats of a trade dispute.
[caption id="attachment_81621" align="aligncenter" width="550"]Fre trade The Trump administration is using every tool in the box on steel overcapacity. Source: Adobe Stock/Argus.[/caption]
To date, the Global Forum on Steel Overcapacity hasn’t caused overcapacity to come down very much. Can a section 232 investigation or other U.S.-only actions change that? The U.S. steel industry certainly seems to think so. Or it’s at least saying, “why not try?”
Steelmaker executives such as U.S. Steel CEO Mario Longhi and SSAB Americas President Chuck Schmitt flanked Trump and Ross at the memorandum-signing ceremony calling for the Section 232 investigation yesterday. The praise was universal from steel producers as one might expect, too. Still, Trump’s latest salvo on trade will renew concerns that China may retaliate.
China’s Foreign Ministry spokesman Lu Kang said today the country needed to ascertain the direction of any U.S. investigation before it could make a judgment. There’s also the fact that Trump now claims that he and Chinese President Xi Jinping are the best of friends.
Chinese steel executives also repeated their mantra that overcapacity is not just China’s problem and it needs global coordination to resolve it, but also said it would be tough to rein in the sector.
“The Chinese government will not set export limits for the steel mills and could not keep track of every mill,” Li Xinchuang, vice chairman of the China Iron and Steel Association, told Reuters.
What may be more effective is rising steel prices in China and what looks more and more like a very real crackdown on pollution and dirty air in China. An early-year surge in Chinese steel prices has lifted the prices of its export products and China has lost its competitiveness with other markets. With coking coal prices increasing, Chinese steel prices could increase even more, which our Lead Forecasting Analyst, Raul de Frutos, pointed out this week.
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On a personal note, this will be my last MetalMiner week-in-review. I have thoroughly enjoyed informing all of you wonderful readers and site users about the latest developments in metals markets these last three years. Thank you for taking advantage of our services. It has been an honor.
 

Trump Asks Commerce for Steel Imports Probe Regarding National Security

Trump Asks Commerce for Steel Imports Probe Regarding National Security

UPDATED 11:47 AM with Comments from President Trump, Commerce Secretary Wilbur Ross and the American Iron & Steel Institute.
President Donald Trump will sign a directive asking for a speedy probe into whether imports of foreign-made steel are hurting U.S. national security, two administration officials told Reuters on Wednesday.
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Trump signed the memorandum related to section 232 of the Trade Expansion Act of 1962 at the White House with leaders of some domestic steel companies, such as U.S. Steel‘s CEO Mario Longhi and SSAB Americas President Chuck Schmitt in attendance. The law allows the president to impose restrictions on imports for reasons of national security. The order would only task the Commerce Department with starting a probe into the imports and if they, indeed, harm national security. Reuters reported that Commerce Secretary Wilbur Ross has already tasked Commerce personnel with starting the probe.
Trump said Ross and Commerce would be back “very, very soon” with recommendations about how to protect the American steel industry. He also repeated campaign trail criticism of the North American Free Trade Agreement and said that farmers in Wisconsin are also suffering from cheap imports of dairy products from Canada.
“Times of crisis call for extraordinary measures. Massive global steel overcapacity has resulted in record levels of dumped and subsidized foreign steel coming into the U.S. and the loss of nearly 14,000 steel jobs,” said Thomas J. Gibson, president and CEO of the American Iron & Steel Institute, the largest trade organization of North American steel producers. “The Administration launching this investigation is an impactful way to help address the serious threat posed by these unfair foreign trade practices, and we applaud this bold action.”
According to Ross, the investigation was “self-initiated” by Commerce and will consider “the domestic production (of steel) needed for the projected national defense requirement” and if domestic industries can meet that requirement. It will also look at “the impact of foreign competition on specific domestic industries and the impact of displacement of domestic product because of foreign imports.”
There are national security implications from imports of steel alloys that are used in products such as the armor plating of ships and require a lot of expertise to create and produce.

China’s Miffed That India Isn’t Importing Chinese Steel for its Rail Projects

China’s Miffed That India Isn’t Importing Chinese Steel for its Rail Projects

The seesaw battle between steelmakers in China and India took a new twist recently with a report in a Chinese newspaper calling the Indian government on its “protectionist” stance on steel.
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The state-run Global Times newspaper said in a report, referring to India’s decision to award its first bullet train project to Japan, that India needed to have a “sober” look vis-a-vis China when it came to solutions for India’s proposed railway network revamp or its entirely new high-speed rail project.
The high-speed “bullet train” project is likely to commence in 2018 on a 315-mile (508-kilometer) route between Mumbai and Ahmedabad. It’s slated to be completed by 2023.
India has been waging a war against cheap steel imports into the country for some time now, with Chinese steel companies high on their bad guy list. The government imposed taxes in various forms not to protect its own steel industry, but to equalize import prices to production costs. Over 80% of the funding for the project is coming from Japanese investments.
The Chinese news report, though, said that India needs China more than the other way around when it comes to steel rail manufacturing and train technology.
The Global Times report said countries and regions along the Silk Road would “benefit considerably” from China’s exports of its train technology which, to date, Indian buyers have admittedly enjoyed both in terms of pricing and quality of the finished rail, switch and hub projects. It thus advised that New Delhi take a “sober look” at its neighbor when it comes to solutions for India’s rail network revamp or the new high-speed rail project.
This tiff goes back several years. China initially made a bid for India’s high speed train corridor projects and, back home, Chinese companies have already built over 12,427 miles (20,000 km) of high-speed rail lines. That number is expected to go up to nearly 28,000 miles (45,000 km) by 2030.
The Chinese media report also criticized India for taking what it called a “protectionist stance” by slapping anti-dumping duties on Chinese steel products, despite the fact that India has A/D duties on several countries and the European Union’s steel imports in recent years.
The implication is that India is somehow done with Chinese steel and won’t use it in either project, but the reality is that it’s not as if India wants nothing to do with China, its steel, or even its expertise in rail construction. In the last two years, India has worked out cooperative agreements with China for the development of railways. Also, Indian Railway engineers are getting trained in China in heavy hauling.
Sure, while China may be making a case for its rail expertise, the pitch on the steel front has turned a tad more in favor of native Indian producers in recent years, but that’s really nothing new at this point. India turned into a net exporter of steel this year. A decline in Indian steel imports coincided with strong growth in steel exports by domestic mills, supported by an improvement in pricing in international markets, said Senior Vice President of ICRA, Jayanta Roy. This was all against a gap of 7.6 metric tons in fiscal 2016 between India’s steel imports and exports, so exports finally surpassed imports in India’s 2017 fiscal year.
While all of this was going on, just across the border China drastically reduced its own steel capacity, yet still reported an overall steel production increase. This looks, very much, like an attempt to find a place for excess stocked up raw steel products than anything that has to do with a business relationship to bring rail expertise or technology to India’s big projects in that light.
According to reports, China produced 808.4 million mt of steel in 2016. It produced 61.2 mmt of steel in February 2017, a growth of 4.6% year-over-year. The rise in February was China’s 12th straight monthly year-on-year rise in steel production. China has recently decided to cut 50 mmt of steel capacity, which was higher than the target of 45 mmt for 2016, but that won’t do much for existing stockpiles that are waiting for customers right now.
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India is merely making its steel in India and China is merely trolling for large projects that require exports of bulk steel. None of that, of course, means India wouldn’t gladly work with its neighbor, bring in Chinese companies for their rail construction expertise and maybe even purchase some specific rail products that Chinese companies can provide if the price was right.

Chinese Steel Exports Reach 3-Year Low; Duterte Wants Mining Compromise

Chinese Steel Exports Reach 3-Year Low; Duterte Wants Mining Compromise

Chinese steel exports tumbled to a three-year low in February, customs data showed last week, lower than expectations, as steelmakers in the world’s top producer shifted to meeting rising demand at home.
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Shipments for the month were 5.75 million metric tons, the lowest since February 2014, data from the General Administration of Customs showed. It was down 29.1% from a year ago and down 22.5% from January.

Duterte Wants Mining Compromise

Philippine President Rodrigo Duterte said recently he hopes there will be a “happy compromise” between the mining industry and protecting the environment, throwing support to Environment and Natural Resources Secretary Regina Lopez will appear before Congress ahead of her confirmation hearing. Lopez is under pressure because she has closed nearly half the nation’s mines.

Public Protest Rather Than International Pressure Forcing Change in China

Public Protest Rather Than International Pressure Forcing Change in China

We should not underestimate the effect environmental issues are having on policy in China. For the last 20 years, the West has watched the growing industrialization in China achieved at the cost of massive environmental pollution.
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Western firms have been forced to adhere to ever stricter environmental standards while steel, aluminum, cement and a host of other heavy industries in China, India and the developing world had been allowed to avoid or have flouted environmental standards saving them costs and hence allowed them to outcompete western firms.
Many may say it’s too little and too late, but finally environmental issues are becoming such a hot topic in emerging markets they are beginning to impact planning and public policy. A recent Financial Times article details how mass protests against a new aluminum plant, planned by the notorious Zhongwang Holdings, in the depressed Chinese oil town of Daqing near the Siberian border has forced a rethink. It’s not as if Daqing does not need the investment. Once a thriving oil town based on China’s largest and first major oilfield Daqing, in Heilongjiang province, is now facing a bleak future as the oil field is rundown. Zhongwang’s proposed CNY 46 billion ($6.7 billion) investment would bring jobs and a degree of prosperity but the local population fear the plant would pollute the city and water supply.
Unfortunately for protesters, the local city officials seem intent on the plant going ahead, and while they are paying lip service to a review the probability is they will allow protests to die down and then try to continue with the project. Menacingly the local Daqing government has threatened anyone who “slandered” Zhongwang, “spread rumors or upset society” with dire legal consequences.
Protestors probably have good reason to doubt their local government’s assurances that environmental demands will be met. According to Radio Free Asia two existing chemical plants in the town regularly pass the annual environmental tests yet still cause widespread pollution without any consequences.
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Public process against developments which are feared to bring pollution are probably not yet at the stage where they will seriously impact further investment in aluminum, steel or other heavy industries but the growing level of public concern has not gone unnoticed in Beijing, and will undoubtedly result in tighter environmental standards both for future and current production facilities helping, in some small extent, to level the playing field for western producers having to compete against the emerging market producers who have historically avoided the costs of environmental regulation.

The Steel Price Rally Cools Down…. For Now

[caption id="attachment_83436" align="aligncenter" width="500"] US hot-rolled coil prices retrace. Source: MetalMiner IndX.[/caption]
Since November — Coinciding with Donald Trump’s victory — U.S. steel prices have been on a tear.
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However, in February momentum started to cool down. It’s now buyers’ job to determine whether this is a major peak or just a pause within this bull market.

Chinese Steel Capacity Rises in 2016

In February, a report by Greenpeace East Asia and Chinese consultancy Custeel “stated that despite China’s high-profile efforts to tackle overcapacity, China’s operating steel capacity increased in 2016,” according to Reuters. In its reporting, the Washington Post noted that the co-authored report “says that 73% of the announced cuts in capacity were already idle — in other words the plants were not operating. Only 23 million metric tons of cut capacity involved shutting down production plants that were operating.”
Meanwhile, some 49 mmt of capacity that had previously been suspended was restarted, and 12 mmt of new operating capacity came online. That means that China added 37 million metric tons additional operating capacity in 2016.
[caption id="attachment_83437" align="aligncenter" width="500"] Hot-rolled coil prices in China also take a pause. Source: MetalMiner IndX.[/caption]
This news is bearish for steel prices and it is likely contributing to lower steel prices in February, both in the U.S. and China.

Chinese Steel Output Rises, Can The Steel Industry Rely On China’s Promises?

Chinese Steel Output Rises, Can The Steel Industry Rely On China’s Promises?

When it comes to providing stimulus to meet growth targets, you can’t bet against China. But when it comes to cutting output, things can get obscure… literally.
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According to a new report by Greenpeace East Asia and Custee a Chinese consulting firm, China’s steel capacity in 2016 actually increased and not decreased despite the very public announcements of capacity curtailments. According to the report, 73% of the announced cuts in capacity had already been idled and therefore, not actually in operation. Steel capacity curtailments may have only involved 23 million metric tons of capacity that had been in operation.
Meanwhile, some 49 mmt of capacity that had previously been suspended was restarted, and 12 mmt of new operating capacity came online. That means that China added 37 million metric tons additional operating capacity in 2016.

Production Up, Prices Up

[caption id="attachment_83243" align="aligncenter" width="500"] Chinese Hot-rolled coil price climbs. Source: MetalMiner IndX.[/caption]
After falling in 2015, Chinese crude steel output is now rising again at a healthy clip — it was up 4% on the year in the fourth quarter. Meanwhile, hot-rolled coil prices in China rose near 70% for the year. Despite resilient output, demand growth has been much more significant. As a result, Chinese steel exports have fallen double digits for four consecutive months.

Can Just Promises Sustain Rising Prices?

Sentiment in the steel industry is also bullish thanks to expectations of lower output this year. In January, China promised some major shut downs of low-quality steel by June of this year.
Eliminating excess steel capacity and restructuring the industry has enormous environmental significance because the steel industry is the second-largest emitter of air pollution in China. This is another reason to believe Beijing will strengthen its supply-side reforms this year.
However, according to the report most of the capacity elimination target set for the 2016-2020 period has, technically, already been achieved in 2016, meaning that capacity elimination in 2017-2020 will be much more modest unless targets are increased. Meanwhile, a 21 mmt capacity increase is still in the pipeline from new projects, and there is at least 42 mmt of existing idle capacity that could be used to fulfill the capacity elimination targets.
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These numbers give us reasons to doubt on what China can deliver this year. China is now under pressure to demonstrate progress on capacity cuts. But financial and legal incentives to keep marginal firms running will cause regulators to struggle to enforce capacity cuts. Chinese steel mills are so hard to get rid of as they are often a key source of local tax revenue and employment.

What This Means For Metal Buyers

The sustainability of the ongoing rising trend in steel prices will much depend on China. Buyers will need to keep a close eye on how much growth can China deliver and how much of the promised production cuts will actually materialize this year. The problem is that growth without controlling steel out will only translate into severe air pollution.

Report: China’s Steel Cuts in 2016 Were Fake, Capacity Actually Went Up

Report: China’s Steel Cuts in 2016 Were Fake, Capacity Actually Went Up

China announced last year it had implemented ambitious cuts in steel capacity. Now, a new report says that not only did those cuts not happen, but China actually increased steel production capacity.
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But a new report by Greenpeace East Asia and Chinese consultancy Custeel says that number was largely smog and mirrors. Many of the plants China says it closed down were already idle, while production was restarted elsewhere and brand new plants opened.
China, which accounts for half the world’s steel production, has a total capacity of 1.1 billion metric tons, announced plans to eliminate 100-150 mt of annual production over the next five years.
Last year, it said it had far exceeded its initial target to cut capacity by 45 million mt, which China said its steel sector exceeded, recording total 2016 cuts of around 85 mmt.
But the Geenpeace/Custeel report said that 73% of the announced cuts in capacity were already idle — in other words the plants were not operating. Only 23 mmt of cut capacity involved shutting down production plants that were operating.
At the same time, some 54 mmt of capacity were restarted, and 12 mmt of new operating capacity came online.
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That left China showing a net increase in operating capacity of 36.5 mmt last year, a figure that is consistent with a 3% increase in steel production in the second half of last year.
Such an increase is consistent with evidence of a deterioration in the air quality in Beijing in the second half of last year — the steel industry is a heavy consumer of coal and contributor to air pollution, and most of the restarted capacity came in the industrial provinces near the capital, Shanxi, Hebei and Tianjin.

How Far Can Steel Price Spreads, US Steel Prices Rise in 2017?

The price you pay for your steel pretty much depends on two things:

  1. Prices in China, since they set the floor for international steel prices.
  2. How much of a premium U.S. mills are able to justify over that price.

 
[caption id="attachment_82785" align="aligncenter" width="317"] Graphic: Raul de Frutos/MetalMiner.[/caption]
Prices in China are moved by supply and demand dynamics. We’ve explained in previous posts that overall, things are setting up for Chinese prices to continue to trend higher. While demand has been better than expected, China met its 2016 capacity cuts goal and further cuts are expected to take place this year as the country tackles its pollution issues.
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However, in this post we’ll focus on the premium that U.S. customers pay. This price spread between U.S. and international prices is also very important and could make your purchases more expensive in the coming months.
[caption id="attachment_82782" align="aligncenter" width="500"] Spread HRC US – HRC China. Source: MetalMiner IndX.[/caption]
Spreads have fallen sharply over the past few months. The spread between U.S. and Chinese hot-rolled coil (HRC) prices is now $97/ton. To put this in context, consider that this spread was $276/ton just seven months ago.

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