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Japan’s steel sector is facing tumultuous times.

But, in the short term, there are initial signs of it pulling through in 2021.

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Pandemic impacts on Japan’s steel sector

The COVID-19 pandemic contributed to the weakening of domestic needs. Furthermore, tepid global demand, cheaper exports by China and an ambitious net-zero emission target to develop cleaner steel have all come together to negatively affect the country’s steel sector.

According to an S&P Global Platts report, Japan’s iron and steel product exports fell 4.9% year over year to 32.14 million metric tons (MT) in 2020.

Quoting from data from the Japan Iron & Steel Federation, the report noted total exports to the US fell 30.5% year over year to 890,000 MT. That marked the fourth straight year of decline since reaching 2.06 million MT in 2016.

A slight recovery in December saw exports rise by 5% from November to 2.56 million MT. Hot-rolled wide strip steel accounted for the bulk of the ordinary steel products exported.

In fact, for the first time since 2009, as the S&P Global Platts report noted, Japan’s crude steel production fell below the 100 million MT mark.

Production fell 16.2% year over year to 83.19 million MT in 2020, according to the World Steel Association.

The country’s crude steel output fell 3.9% in January this year from a year earlier.

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This morning in metals news, trade experts cited by Reuters say the U.S. might have to find another route to impose tariffs on imported automobiles, Japan’s crude steel output dropped in October and U.S. steel prices have started to show some signs of upward momentum.

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Section 232 Auto Deadline Flies By

Last week, a self-imposed deadline for the Trump administration’s Section 232 investigation of imports of automobiles (and automotive parts) passed without an announcement of a decision (either to delay the decision, or to impose or not impose tariffs).

The self-imposed deadline fell late last week — the Trump administration had already delayed the decision once earlier in the year — but no decision was announced.

According to trade experts cited by Reuters, the U.S. might now have to look elsewhere other than Section 232 if it wants to impose tariffs on automobiles.

Japan’s Steel Output Falls

Japan’s October steel output fell 4.9% on a year-over-year basis, Reuters reported.

Japan is the world’s third-largest steel producer. According to Reuters, the drop marked the fourth straight month of production declines.

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U.S. Steel Prices Show Some Bounce

Some wondered whether U.S. steel prices had reached a bottom.

While it remains to be seen whether that is truly the case, prices have shown some signs of recovery over the past month.

According to MetalMiner IndX data, U.S. HRC is up 2.61% month over month, while U.S. CRC is up 1.89%. The U.S. HDG price is up 3.36%.

Automotive markets just about everywhere are in decline this year.

The question is: to what extent is this a cyclical downturn as opposed to a structural shift?

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The Financial Times article reported Indian passenger vehicle sales fell 31% last month from the same time a year earlier, according to the Society of Indian Automobile Manufacturers. It was the worst month since the turn of the century in a dismal spell that has seen sales fall 20% or more for four consecutive months, while sales have failed to rise for more than a year.

India’s economy is slowing, with GDP growth falling to a five-year low of 5.8% in the first quarter of 2019. In addition, a liquidity squeeze caused by a crisis in its shadow banking sector is choking off consumer demand and business expansion.

The article goes on to explain that about 40% of new car loans came from these shadow banks, making liquidity tight. Although a reduction in India’s high car taxes — the government levies a 28% goods and services tax on cars, with the effective rate including other duties rising as high as 48% for some vehicles — is a possibility, it is unlikely the new administration’s cash-strapped budget could afford it.

Significant as India’s car market is — as recently as last year, India’s motor market was thought to be on course to overtake Germany and Japan and become the world’s third-largest, the Financial Times reported – Germany’s is even larger.

Yet, declines are dramatic in Germany, too.

Source: ING Bank

Germany’s problems are more nuanced.

Domestic production has been hit by the delayed introduction of the new worldwide light vehicle test procedure, which caused severe disruption to German automotive production and shipments.

But matching the introduction of the China 6 emission standard has also caused a downturn in Germany’s largest automotive export market: China.

To underline the importance of the market, ING Bank reported that in 2018 almost one-quarter of all cars sold in China were German. BMW and Daimler recorded more than one-third of their total car sales in China. For Volkswagen, the share is even bigger (40%).

Yet new car sales in China have fallen for 13 months in a row, a slump that started in the second half of 2018 when the trade war between China and the U.S. began to heat up, according to ING.

The trade war has been a factor. U.S. customs duties on Chinese goods worth U.S. $250 billion (with U.S. $300 billion to follow Sept. 1) and Chinese customs duties on U.S. goods worth U.S. $110 billion, car and car parts from China are being taxed at 27.5% in the U.S. since July 2018. U.S. autos are subject to China’s standard tariff rate of 15%.

Given that some German car manufacturers actually export U.S.-produced cars to China, there has been a clear and direct impact of the trade conflict on the German car industry.

But that is only part of the story.

The switch to China 6 meant consumers held off buying the older models despite a major distributor push to discount old stock.

But the industry worries China could be going through a structural shift.

According to ING, China is already the largest ride-hailing market in the world, with over 459 million customers and a turnover of around U.S. $53 billion. By comparison, where it all started in the U.S. there are currently 66 million users generating U.S. $49 billion in turnover.

To put things into perspective, one-third of the Chinese population already uses alternative mobility solutions, while in the U.S. the figure is around 20% and in the E.U. it is just 18%. Further, while in the U.S. ride-hailing is used occasionally by a car owner, in China many users are not yet on the car ownership ladder; as ride-hailing becomes more widespread, those users may elect never to become car owners.

According to JustAuto, new vehicle sales in China fell by 4.3% to 1.81 million units in July from 1.89 million units a year earlier, according to wholesale data released by the China Association of Automobile Manufacturers. This includes all vehicle types, passenger vehicles and commercial vehicles, with the cumulative seven-month total at 14.13 million units – down by 11.4% from the 15.96 million units sold in the same period of last year.

Jeff Schuster, president of global forecasting at LMC Automotive, is quoted in Europe’s Autonews as saying global light-vehicle sales will decline 2.6% in 2019 to 92.2 million units. Through 2025, he doesn’t see more than 2% growth as the mature markets of western Europe, the U.S., Japan and Korea contract in volume over the next five to seven years. Only electric vehicle production as a subset — coming from a very low base — is set to rise.

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The industry’s current downturn is in part cyclical and production will recover regionally as consumer confidence and access to credit improves.

At the same time, there is a structural shift happening that will impact the industry’s long-term future and create significant challenges for global western carmakers in the years ahead.

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This morning in metals news, the iron ore price slipped Thursday, the Indian steel import market is dominated by Japan and South Korea, and trade tensions between the U.S. and China continue to gain.

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Iron Ore Slows Down

Supported by supply-side concerns, the iron ore price has surged so far this year.

However, on Thursday, Chinese iron ore futures slipped, Reuters reported, with the most-traded iron ore contract on the Dalian Commodity Exchange falling 0.5% (albeit on lower volumes after higher transaction fees went into effect).

Japan, South Korea Dominate Indian Import Market

According to government data cited by Reuters, Japan and South Korea increased their share of the Indian steel import market to nearly two-thirds in April.

India’s steel imports from Japan increased 27% in April on a year-over-year basis, while imports from South Korea jumped 15%, according to Reuters.

Rising U.S.-China Tensions

Trade tensions between the U.S. and China are on the rise once again on the heels of the countries’ recent tariff tit-for-tat, in which President Trump raised tariffs on $200 billion in Chinese goods and China responded with tariffs on $60 billion in U.S. goods.

China on Thursday accused the U.S. of “economic terrorism,” CNN reported.

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As Stuart Burns noted this week, the situation could escalate further should China opt to leverage its dominance of the rare earths market.

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This morning in metals news, Japan saw its steel production fall over fiscal year 2018, the general counsel for the United States Trade Representative is leaving the administration and U.S. housing starts in March were down 14.2% year over year.

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Japanese Steel Production Drops in FY 2018

Japanese steel production for fiscal year 2018 fell 1.9%, according to data from the Japan Iron and Steel Federation cited by S&P Global Platts.

During the fiscal year, which ended March 31, Japanese steelmakers produced 102.89 million metric tons of steel, according to the report.

USTR Legal Counsel Steps Away Amid U.S.-China Talks

As trade talks between the U.S. and China appear to be heading closer to their final stages, the Office of the United States Trade Representative (USTR) is losing a legal adviser.

USTR General Counsel Stephen Vaughn is leaving his position in the coming weeks and will be replaced by Joseph Barloon.

“From the beginning of the Trump Administration and the many years I have worked with him before, Stephen Vaughn has been a principled leader, a trusted advisor, and an expert attorney advancing fair trade in the interest of working Americans,” USTR Robert Lighthizer said in a prepared statement. “Stephen has played a central role in shaping and implementing the President’s trade policies, especially related to China and the World Trade Organization. I am deeply grateful for Stephen’s service to our country, including his leadership as Acting USTR during the first few months of the Administration. Stephen and his family have my warmest wishes as Stephen moves on to his next venture.”

March Housing Starts Take a Dive

U.S. housing starts in March again dropped off, hitting 1.14 million for the month. The March total marked a 0.3% from the revised February 2019 estimate.

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Meanwhile, privately-owned housing starts were down 14.2% compared with March 2018 starts.

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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.

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This morning in metals news, prices of Chinese steel and steelmaking ingredients were down Friday, India is in talks with the U.S. over a steel tariff exemption and Japanese crude steel output might be decline in the first quarter of 2019.

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Chinese Steel Prices Down

A number of metals are closing the year on a downward note, and Chinese steel is no exception.

Prices of Chinese steel and steelmaking ingredients were down Friday (the last Friday of the year), with the most-active SHFE rebar contract down 0.5%, according to Reuters.

India, U.S. in Talks Over Steel Tariff Exemption

The Trump administration imposed its Section 232 tariffs on imported steel and aluminum in March, but countries are still lobbying for exemptions from the 25% tariff on steel and 10% tariff on aluminum.

According to another Reuters report, India is in talks with the U.S. over the possibility of a steel tariff exemption.

India is the world’s ninth-largest steel exporter. According to the International Trade Administration, the U.S. ranked sixth as a destination for India’s steel exports, accounting for 4% of its exports, or 204,000 metric tons, through October of this year.

Japanese Steel Production to Drop in Q1?

Crude steel production in Japan might be starting 2019 with operational issues that could hamper production, according to a report by the Hellenic Shipping News citing a government ministry.

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According to the report, citing Japan’s Ministry of Economy, Trade and Industry (METI), estimated crude steel output could drop to 26.31 million tonnes during Q1 due to operational issues at various plants. That estimated production figure would mark a 0.4% drop from the same period in 2017, according to the report.

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This morning in metals news, Chinese steel prices are dropping, Rio Tinto is leading the copper charge in Australia’s Great Sandy Desert and Asian aluminum prices are coming down.

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Chinese Steel Market

Chinese steel prices are entering a bear market, according to a Reuters report.

Steel prices hit a five-month low Monday, Reuters reported.

MetalMiner’s Take: U.S. steel-buying organizations ought to watch China’s demand very carefully now, as price trends in China lead price trends in the U.S.

Lower oil prices combined with sluggish Chinese demand does not bode well for the industrial metal’s long-term bull market. The dramatic shift in oil prices and lower metal pricing coming out of China represent two significant variables tracked by MetalMiner with respect to calling a bull or bear market.

December forecast subscribers will be the first to learn whether or not MetalMiner will change its long-term outlook. A shift in outlook would also signify a switch in sourcing strategies.

Copper in the Desert

Rio Tinto is leading the way when it comes to copper mining in the remote Great Sandy Desert of Western Australia, Reuters reported.

According to the report, the miner has put in 30 exploration licenses for the area, leading to speculation that Rio has possibly made a significant discovery in the area.

Aluminum Prices Dropping

Asian aluminum prices are on the downswing, including in Japan, according to the Nikkei Asian Review.

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Aluminum ingot prices in Japan in October were approximately 10% lower than in the U.S., according to the report.

MetalMiner’s Take: It is arguable whether the fall in Asian aluminum prices is a result of U.S. tariffs or a slowing of metal demand in Asia.

Prices in Europe have been supported by high prices European mills are achieving in the U.S. market, so the same should have been true for Asian suppliers in general.

Only Chinese mills are facing exceptional tariff barriers; mills in South Korea, Taiwan and Japan do not face the same obstacles. Chinese production is sliding and primary aluminum output has been falling this quarter, which some analysts are chalking up to an early onset of environmental controls for the winter heating season. If the market were being artificially constrained, domestic Chinese prices would rise as a result in the tighter market — but that is not the case.

Domestic prices have remained broadly stable, suggesting the market is slowing due to lower domestic and regional demand.

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This morning in metals news, President Trump is reviewing the U.S.’s steel and aluminum tariffs with respect to their application to Canada and Mexico, copper prices are up and the World Trade Organization (WTO) has set up a panel for a dispute between Japan and South Korea.

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Could Metals Tariffs on Canada, Mexico be on the Way Out?

Kelly Craft, the Trump administration’s ambassador to Canada, said the president is reviewing the U.S.’s steel and aluminum tariffs on Canada and Mexico, according to a Bloomberg report.

Canada and Mexico initially secured a temporary exemption this spring, but that expired June 1. The countries hope that the U.S. will remove the tariffs before the signing of a finalized trade deal (the recently agreed upon United States-Mexico-Canada agreement, the successor to the North American Free Trade Agreement).

MetalMiner’s Take: Many readers believe Canada and Mexico will be exempt from the Section 232 tariffs with the passage of the new trade agreement. If the tough rules of origin language on USMCA is adopted, the lifting of the tariffs would certainly provide some relief, particularly for semi-finished aluminum products, which remain in short supply within the United States.

But it seems like passage of the deal remains contingent on the lifting of the sanctions, so it remains unclear who will win this game of chicken. Regardless, service center inventory levels have risen; rising inventory levels generally do not support prices.

Copper Prices Rise

LME copper prices were up Monday partially on account of shrinking LME inventories, Reuters reported.

LME copper jumped 1.1% on Monday.

MetalMiner’s Take: It is not just falling LME inventories that are supporting copper. Despite the impact on the Chinese stock market and much media hullabaloo around trade wars, copper consumption in China remains robust (both for refined and scrap).

The copper market is tight and continued global growth, permitting that lack of abundant supply, will continue to support the market.

WTO Launches Panel for South Korea-Japan Dispute

The WTO has set up a panel to deal with a dispute between Japan and South Korea over the latter’s anti-dumping duties on stainless steel bars, according to the Nikkei Asian Review.

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The duty has been in place since 2004, according to the report.

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This morning in metals news, copper and aluminum prices drop, Japanese steel exports fall and the U.S. and Canada still remain without a new deal vis-a-vis North American Free Trade Agreement (NAFTA) renegotiation efforts.

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Copper, Aluminum Prices Fall on Scaledown of China’s Winer Cuts

Copper and aluminum prices were both down Friday, partially stemming from news in China regarding its regimen of winter capacity cuts (aimed at reducing rampant pollution in the country).

According to Reuters, China’s decision to shy away from blanket winter cuts saw to a drop in copper and aluminum prices.

MetalMiner’s Take: LME copper prices decreased slightly this week.

However, LME copper prices have shown strength in September. Copper prices breached the $6,000/mt ceiling, back to July levels.

Meanwhile, LME aluminum prices traded more sideways this month.

China’s environmental curbs may create upward movement for the base metal, despite the decrease SHFE aluminum showed yesterday.

Winter cuts may reduce aluminum availability in a supply-concerned market.

Japan’s Steel Exports Drop

Japan’s August steel exports were down 0.9% compared with August 2017, according to S&P Global Platts.

However, exports were up 3.9% compared with July totals, according to the report.

NAFTA Standstill Continues

The U.S. and Canada have continued without having reached a deal on NAFTA, a month after the U.S. touted a preliminary deal with Mexico.

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According to Reuters, the U.S. plans on releasing the text of its trade agreement with Mexico, one that largely excludes Canada, according to lawmakers briefed on the text Thursday.

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