Those not involved in the steel industry tend to look at large, integrated blast furnace steel plants as dated technology light-years from the gleaming glass and concrete operations of IT or electronics. However, steelmakers are constantly striving for technological improvements.

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In fact, the very marginal nature of steel production in the western world means that constant innovation is a necessity for a firm’s survival. Comparisons between U.S. Steel and Nucor Corp. illustrate this point. When U.S. Steel was focused on cost reduction and rationalization at the turn of the century, Nucor was innovating and investing not just in alternative electric arc furnaces, but in direct casting and other downstream technologies. As a result, Nucor is now North America’s most successful steel company but they’re not alone in looking to technology for their future prosperity.

Continuous Casting

An interesting article in the Economist details efforts at a number of steel producers around the world to find a better alternative to the traditional blast furnace. The slab casting and re-rolling route is epitomized by the likes of U.S. Steel and the major Asian steel mills. For years, the only real challenger to this process was the electric arc furnace which enjoys the benefits of scrap as a raw material and greater flexibility and economies of scale allowing it to operate profitably on a fraction of the cost required throughout for a traditional blast furnace-based integrated steel plant.

Innovation in steelmaking is coming from novel uses of liquid metal. Source: Adobe Stock/Photollug.

One of the major attractions most EAF plants have is that they produce final product by the continuous casting route. The liquid metal is taken from the refining vessel and, for flat-rolled products, continuously cast into 80-120-mm thick slabs, which can then be further rolled to thinner gauges. Read more

As one might misquote Mark Twain, we have been here before.

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In 2016, analysts were queued up to predict the iron ore price was going to collapse only for it continue its relentless rise. The recent pull back from $90 per metric ton has brought a fresh crop of dire predictions. Yet maybe, just maybe, there is more validity this time around for caution as to future price direction. There are a number of factors, each of which individually does not signal a price reversal but collectively suggests iron ore prices later this year could be lower than they have been in the first quarter.

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An article in the Australian Financial Review quotes analysts saying, the strength of recent pricing is encouraging Chinese domestic production to increase. In the first half in 2016 it was averaging a 220 million mt per year run rate, but rose to 280 mmt per year in the second half of the year. At the same time, global supply continues to rise with not just increased shipments from Australia but also number three miner Vale SA expanding supply from its $14 billion S11D mine. Read more

The Federal Reserve is hinting at multiple short-term interest rate increases this year, a sign that the central bank expects the recent economic surge to continue and wants to limit the possible impact of inflation.

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Minutes from the Fed’s two-day meeting Jan. 31-Feb. 1 show that the tax cuts and spending proposals floated by the Trump administration continue to loom large over the central bank’s decisions. While the Fed chose to leave its interest rates unchanged at the meeting three weeks ago, investors widely expect two to three more rate hikes this year, perhaps as early as March, as the Fed continues on its path of gradually raising interest rates to combat gathering inflation.

Yet the central bank emphasized that it would adjust the pace of rate increases in line with the economy’s performance.

Fortescue Reports $1.2 Billion Profit

Australia’s Fortescue Metals Group Ltd. reported yesterday a 383% rise in interim net profit to $1.2 billion, surpassing the $319 million in the year-earlier period on the back of a surprise surge in iron ore prices… somehow this still fell short of market expectations.

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Analysts had forecast profit for the six months to Dec. 31 of about $1.5 billion, according to Thomson Reuters data.

As the new year dawns, we turn our eyes toward the metal markets of 2017. Will the bull run of 2016 continue? What will be the standout performer of the metals we track? Will New Coke finally make a comeback as Even Newer Coke? Only to re-reintroduce Coke Classic in all its aluminum-encased glory? We have predictions. Lots of them.

Steel on Wheels

That’s right, the North American steel market is picking up steam and chugging toward expanded production and renewed profitability for many of the companies we track. Contributor James May said this week that flat products will enjoy higher demand while hot-rolled coil capacity will expand thanks to a combination of new capacity going online (Big River Steel‘s plant is set to open) and the trade policies of the incoming Trump Administration.

Iron Ore Overseas

China consumes over 70% of the world’s seaborne iron ore and a strong year for the Chinese economy bolstered the steelmaking raw material from from $40 per metric ton to $70/mt in global markets last year, an increase that helped re-energize the bottom lines of mining majors Rio Tinto Group, Vale SA, BHP Billiton and Fortescue Metals Group.

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This week, Sohrab Darabshaw pointed out that that was cold comfort to smaller miners in India who are still hamstrung by high export taxes and can’t get their ore into China or other lucrative world markets. That could change soon, but MetalMiner Co-Founder Stuart Burns was even more cautious, reminding us that physical iron ore prices were influenced by a rampant futures market last year.

Source: Adobe Stock/Geargodz

“The interplay of the futures market, physical demand from steel mills, and seaborne iron ore supply has too many variables to predict 2017 and ’18 with any certainty,” he said.

Trumping Trade

While some of the markets are still murky, one thing we all agreed on this week was, once Donald Trump is installed as President of the United States, 2017 certainly won’t be boring when it comes to international trade. Read more

After more than four years of languishing, some hope’s been rekindled in India’s iron ore mining sector.

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Ore production jumped 22% between April and October, according to figures released by the government. Iron ore production stood at 100 million metric tons during the resurgence, against 81 mmt during the same April to October period a year ago. What’s brought even more cheer is the news that exports, too, jumped 9 times their previous level, to 9 mmt from last April to September, as compared to 1 mmt, the same period last year.

Export Taxes

With a steep price hike in global markets aided by protectionist measures for the domestic steel industry, will India see a resurgence in iron ore exports? Not so fast.

India has plentiful iron ore stockpiled but taxes are holding up exports. Source: Adobe Stock/nikitos77.

The protectionist measures imposed by India’s government previously included an export duty tax of 30% on high-grade iron ore. Many within the mining sector are of the opinion that the export tax must go, or at the very least be reduced, to boost exports. Read more

By anyone’s reckoning, iron ore and coking coal had a stellar year in 2016. Driven by infrastructure investment and a robust construction market, Chinese imports of our iron ore could top 1 billion metric tons for the first time in 2016. Prices more than doubled in the space of 12 months and the supply-demand situation seemed to be largely in balance for much of the year.

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After topping $80 per mt in early December, prices eased back a little toward the end of the year prompting many to ask “have we seen the peak in iron ore prices?” Mills typically cut output during the quieter winter months when construction demand slows. Many steel mills have already curbed output due to chronic smog alerts across northern China.

Chinese Demand

Seasonally, it would not be unusual if iron ore prices remained subdued up to the Chinese New Year and then picked up in preparation for the peak production months of late spring and summer. But, while Chinese demand defied many expectations of a slowdown in 2016, the recent softening of both iron ore and coking coal raw material prices, and the price of some finished steel products over the last week or 10 days, has lent support to some analysts’ predictions that we could be seeing markedly lower Iron ore prices throughout this year and next. Read more

In recent weeks the Dalian and Zhengzhou commodity exchanges and the Shanghai Futures Exchange have all toughened trading requirements several times.

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The measures imposed include raising trading margins, hiking transaction fees and imposing trading limits in attempt to tamp down speculative trading. Reuters’ Clyde Russell referred to the situation as China having “thrown the world’s commodity producers and traders a massive party.”

HRC and CRC prices in China rising through November. Source: MetalMinerIndX.

This year saw most analysts surprised by the strength of both China’s coal and iron ore imports, which led to rallies in the prices of both commodities. Chinese imports of iron ore jumped to the third-highest on record in November with 91.98 million metric tons up 13.8% from the previous month, taking the year-to-date gain to 9.2% compared with the same period in 2015, according to Reuters. Read more

While this year’s spectacular rebound in iron ore prices has been a godsend for the world’s biggest miners, it has not gone high enough for smaller, less-efficient producers that still have pits shuttered and equipment idle.

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The price of the steelmaking material has nearly doubled in 2016 to above $80 a metric ton, a boon for miners such as Vale, BHP Billiton and Rio Tinto which extract the material at a cost of less than $20 per mt.

ABI Limps Out of 2016

Coming off a modest increase after two consecutive months of contraction, the Architecture Billings Index recorded another small increase in demand for design services. As an economic indicator of construction activity, the ABI reflects an approximate nine to 12 month lead time between architecture billings and construction spending.

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The American Institute of Architects (AIA) reported the November ABI score was 50.6, essentially unchanged from the mark of 50.8 in the previous month. This score reflects a slight increase in design services (any score above 50 indicates an increase in billings).

One Australian miner is requesting Chinese steel mills pay a premium for its highest grade iron ore, a move that experts say will revive the once dormant pricing war.

According to a report from Reuters, Rio Tinto is the world’s No. 2 iron ore miner and demand from Chinese steel producers was at a six-year high when the annual pricing system collapsed. Iron ore supply issues are expected to reignite tensions between miners and mills over pricing.

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“The steel market is so hot this year and they think it’s something that buyers can accept,” an anonymous source told Reuters. “If Rio gets it, other miners may follow.”

It is reported that Rio is looking for up to $1 per ton more than the index price for its Pilbara iron ore product on long-term contracts from Chinese mills for the year ahead. Rio was previously selling iron ore at a premium exclusively to traders.

Steel Prices on the Rise in Asia

Our own Stuart Burns recently wrote that the Asian market has seen steel prices rise due to much of the same dynamic that has pushed steel prices higher domestically. These movements suggest the trend will remain up for the remainder of the year.

How will steel and base metals fare for the remainder of 2016 and into 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Rio Tinto has cut its guidance for iron ore shipments and U.S. consumer confidence unexpectedly fell this month.

Rio Tinto Cuts Back Iron Ore Guidance

Global miner Rio Tinto on Thursday cut its 2016 guidance for iron ore shipments by as much as 5 million metric tons after releasing lower third-quarter production data, citing shipping interruptions.

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The downward revision — equivalent to as much as $290 million at current ore prices — comes as the steelmaking commodity stages a recovery on the back of a surprise lift in demand from China.

U.S. Consumer Confidence Falls

Consumer confidence unexpectedly fell to a one-year low in October as Americans soured on the outlook for the economy amid a contentious presidential election campaign.

The University of Michigan preliminary index of sentiment declined to 87.9 from 91.2 in September, according to a report Friday. That was weaker than the lowest estimate in a Bloomberg survey of economists. Long-term inflation expectations declined to a record low.