steel price

European steel producers have rarely had it so good— that’s not a statement you would expect to hear describing what has been a horribly cyclical industry that has struggled with overcapacity, political interference and significant legacy costs (such as expensive pension funds).

At the same time, the European market has been flooded with cheap imports from Russia, Ukraine, and China, to name a few.

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This year however, despite howls of protest from European steel producers and politicians when the U.S. imposed a 25% import duty on steel products, European steel producers have actually been doing rather well.

The imposition of U.S. import tariffs drove U.S. hot-rolled coil steel futures to a decade high around $900/metric ton this year, up 35%. Rather than lock out European steelmakers, the resulting price rise has been a boon as European mills have found they can still sell into the U.S. despite the tariffs, as domestic mills rapidly followed the market up.

While steel prices in the U.S. held up well over the summer, they are showing signs of weakening now.

According to Reuters, hot-rolled coil prices could be down by $100 per metric ton by the year’s end, as local steel producers ramp up production and higher prices crimp demand.

But in Europe, robust global growth and capacity cuts in China have reduced competition from cheap Chinese imports.

At the same time, importers have been nervous about overordering material since the imposition of the E.U.’s safeguard measures, which were initiated in March but formerly adopted by the Commission only in July. The safeguard measures are intended to impose additional duties if imports exceed what is termed traditional levels. The measures are part of a three-pronged E.U. response to the US decision to impose tariffs on steel and aluminum and are intended to prevent the impact of material being dumped in the E.U. market as a result of it being locked out the U.S.

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As a result, European mills have found their order books have remained strong during the seasonally quiet summer months.

Long products in the North European market are booked out for the next eight weeks, according to SPGlobal. Prices are already up €10 per ton from the early summer and further rises are expected in the coming weeks for rebar, as the current measures reduce imports by some 5 million tons per annum, or 3%, according to Reuters.

Turkey may not be a big cheese in many ways, but its currency has taken a hammering following President Donald Trump’s threats of doubling tariffs and dire sanctions against a select few individuals close to authoritarian President Recep Tayyip Erdoğan.

But apart from the impact on one or two other emerging-market currencies, like South Africa’s, the rest of the world has barely noticed.

In one industry, however, Turkey is a sizable player: steel.

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Even if U.S. steelmakers have been slow to add capacity following President Trump’s tariff protection, it would seem foreign steel makers are willing to commit to domestic U.S. production.

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The Financial Times this week reported on the announcement by BlueScope Steel, Australia’s biggest steelmaker, to examine adding 600,000 to 900,000 metric tons per year of steelmaking capacity to its North Star business in Ohio. This would raise the Ohio plant’s existing production of 2.1 million metric tons per year to some 3 million tons at a cost of between U.S. $500 million and $700 million.

The project would involve the addition of a third electric arc furnace and a second slab caster, according to the Financial Times report. A decision is expected at the company’s February 2019 annual results pending the outcome of the feasibility study, by which time a clearer picture may emerge of what the tariff landscape is going to look like longer term.

Interestingly, Australian steelmakers are exempted from the tariffs; in theory, BlueScope could have invested at home. Australia, however, along with Argentina, are subject to quota limits, so ramping up domestic production to meet U.S. demand is not considered a viable option.

According to the Financial Times, domestic U.S. steel producers are, not surprisingly, doing rather well from the tariffs.

The resulting price rises have fueled a rally in U.S. domestic prices, helping firms like ArcelorMittal surpass forecasts previously set by analysts. Arcelor’s earnings came in at $5.59 billion before interest, taxes, depreciation and amortization for H1 2018. That represented an increase of 28.6% on the same period a year before, as half-year sales rose 17.6% year-on-year in value terms to $39.2 billion, primarily due to higher steel selling prices. Net income was up by almost one-third to $3.06 billion. It hasn’t yet resulted in Arcelor announcing any increased investment in domestic U.S. production capacity — the real aim of the tariffs — but, arguably, steelmakers are waiting to see how the whole tariff situation develops and whether they are truly here to stay (in which case, investment could result).

The U.S. Department of Commerce found foreign steel accounted for about one-third of the 107 million metric tons of steel the U.S. economy used in 2017, the Weekly Standard reported.

Although U.S. producers still have a commanding market share, the report concluded that inexpensive foreign imports were causing domestic steelmakers to lose money, lay off workers, and close plants last year.

U.S. steel plants in 2017 ran at just 72% of capacity, below the 80% level they are widely considered necessary to be profitable. The blame for poor capacity utilization fell firmly at the door of “excessive imports of steel.”

Well, that was last year; this year is something very different.

Following tariffs, steel prices are up sharply, profits are up at the domestic mills and so is capacity utilization. The domestic mills have the option to price balance towards full capacity, shielded as they are now behind a 25% import tariff. They may choose to take higher prices and forego full capacity or adjust pricing to achieve full capacity; we will see what policy has been adopted when Q3 and H2 figures are released.

It is unlikely significant new capacity will be added in the short term, though, despite talk of planned new capacity.

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According to Reuters, steel output in the United States rose 2.9% in the first half to 41.9 million metric tons and gained 0.8% in June to hit 6.9 million tons for the month. Data from the American Iron and Steel Institute (AISI) show capacity utilization at U.S. mills in the year to July was 76.4%, up from 74.4% in 2017, suggesting domestic mills generally are opting for better prices as a route to profitability rather than pricing out tariffed imports.

The Raw Steels Monthly Metals Index (MMI) fell one point further this month, dropping to 89 from the previous 90 reading.

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The Raw Steel MMI has returned to May 2018 levels. The slight drop came as a result of slower domestic steel price momentum.

Domestic steel prices still remain at a more than seven-year high. However, the pace of the increases seems to have slowed recently. Domestic steel prices — with some exceptions — are mostly trading sideways, and some steel forms have started to drop slightly.

Source: MetalMiner data from MetalMiner IndX(™)

Plate and HRC ended higher last month, while CRC and HDG prices dropped. Long lead times in Q2 and Q3 combined with supply shortages have supported domestic steel prices. However, lead times seem to be shortening now, which may causes prices to drift lower.

Historical steel price cyclicality could cause prices to move lower at some point. Domestic steel prices have stayed in a sharp uptrend since January 2018. Prices may begin to come off slightly at some point this year.

Chinese Steel Prices

So far in August, Chinese steel prices have increased. Chinese steel prices appear to be in recovery and have started an uptrend, after a slight downtrend, since the beginning of the year.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese steel prices tend to drive U.S. domestic steel prices. Therefore, buying organizations may want to keep a close eye on pricing.

Domestic Shredded Scrap

Shredded scrap prices traded sideways this month. Scrap prices commonly follow the same trend of domestic steel prices.

Scrap prices have been in an uptrend since the beginning of the year (along with steel prices). The pace of the increases appears to be less sharp, but scrap price movements this year appear to be less volatile than steel prices.

Source: MetalMiner data from MetalMiner IndX(™)

What This Means for Industrial Buyers

Since steel prices remain high, buying organizations may want to closely follow price movements to decide when to commit mid- and long-term purchases.

Buying organizations looking for more clarity on when to buy and how much to buy may want to take a free trial now to our Monthly Metal Buying Outlook.

Actual Raw Steel Prices and Trends

The U.S. Midwest HRC 3-month futures price fell this month by 4.34%, falling to $815/st.

Chinese steel billet prices decreased again this month by 4.05%, while Chinese slab prices fell 2.1% moving to $626/mt.

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The U.S. shredded scrap price closed the month at $371/st, trading flat from last month.

The Automotive Monthly Metals Index (MMI) retraced four points, hitting 99 for our August MMI reading.

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U.S. Auto Sales

July was a down month for Ford, which saw its U.S. sales drop 3.1%. Ford car sales were down 27.7% year over year, and 15.7% in the year to date.

However, truck sales continue to shine, with sales rising 10.2% in July.

“And when you look at the underlying economy, it remains very healthy, and that would be indicative of what we’re seeing in the truck market, with F-Series posting gains and vans posting very big gains for Ford Motor Company,” Ford Sales Analyst Erich Merkle said.

It was a different story for Fiat Chrysler, which reported a 6% sales increase compared with July 2017. According to a company release, its Jeep brand had its best July ever, with retail sales up 16%.

Honda reported an 8.2% year-over-year drop, but touted its growing truck sales.

“For the first time in our company’s history, the Honda brand is on pace this year to sell more light trucks than passenger cars,” said Henio Arcangeli Jr., senior vice president of the American Honda Automobile Division, in a release. “Honda’s unique flexibility within our U.S. manufacturing operations has played a critical role in our ability to adjust our production mix and capitalize on the market’s shift toward light trucks.”

Toyota reported its July sales were down 6.0% year over year, but noted July marked its best month ever for light-truck sales.

General Motors no longer reports sales on a monthly basis, instead opting earlier this year to report on a quarterly basis.

Pumping the Brakes?

Late last month, President Donald Trump and European Commission President Jean-Claude Juncker met at the White House, a meeting that yielded an agreement of sorts to pump the brakes on new tariffs.

However, cars were exempted from the agreement between the two leaders.

A U.S. Section 232 investigation into imports of automobiles and automotive imports is still ongoing. The Department of Commerce launched the investigation using the Section 232 statute — also used to impose steel and aluminum tariffs — in late May and a public hearing was held July 19.

GM Seeks Exemption for Buick Envision SUV

Although the Trump administration has yet to impose new tariffs on imported automobiles, General Motors has asked that its Buick Envision SUV, which is made in China, be exempted from any new tariffs, the Detroit Free Press reported.

Most of GM’s sales of the SUV model come from China, according to the report, and the company argues production in the U.S. would thus not be feasible.

Earlier this summer, GM expressed its opposition to the imposition of new automotive tariffs, saying they would lead to job losses and would impact the automaker’s competitiveness in the global marketplace.

Actual Metal Prices and Trends

It was an overall down month for prices within the automotive basket of metals.

U.S. HDG steel fell 0.7% to $1,103/st. U.S. platinum bars fell 1.8% to $837/ounce, while palladium bars dropped 2.1% to $928/ounce.

Chinese primary lead dropped 14.7% to $2,722.87/mt. LME copper fell 6.1% to $6,236.50.

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U.S. shredded scrap steel held steady at $371/st. Korean aluminum also held steady, sticking at $3.75/kilogram.

The Construction Monthly Metals Index (MMI) lost three points this month, hitting 90 for our August MMI reading.

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U.S. Construction Spending, Employment

According to U.S. Census Bureau data, U.S. construction spending in June fell 1.1% from the previous month.

Spending in June hit $1,317.2 billion, down from $1,332.2 billion in May. However, the June spending time marks a 6.1% increase from the June 2017 spending total of $1,241.3 billion.

For the first six months of the year, spending hit $619.9 billion, marking a 5.1% increase from the same period in 2017.

Broken down further, private construction spending hit a seasonally adjusted annual rate of $1,019.8 billion, or 0.4% below the revised May estimate of $1,023.9 billion. With private construction, residential construction hit $568.3 billion in June, down 0.5% from the revised May estimate of $570.9 billion. In addition, nonresidential construction was down 0.3%, amounting to $451.5 billion in June.

As for public construction, spending in June hit $297.4 billion, 3.5% below the revised May estimate of $308.3 billion. Under the umbrella of public construction, educational construction was  down 11%, amounting to $67.9 billion. Highway construction was down 1.3%, hitting $93.9 billion for the month.

Meanwhile, according to preliminary Bureau of Labor Statistics (BLS) data, construction employment hit 7,222,000 in June, up from 7,209,000 in May.

Billings Growth Slows

Architecture billings growth continued in June, according to the Architecture Billings Index (ABI), but the pace of growth slowed last month. Nonetheless, June marked the ninth straight month of billings growth.

The June ABI hit 51.3, down from the previous month’s 52.8 (any reading above 50 indicates growth).

By region, however, the billings landscape was a mixed bag.

The South region posted a 57.4, while the Northeast posted modest growth with a reading of 50.2. The Midwest and West lagged behind, however, with readings of 49.8 and 46.9, respectively.

In this month’s survey of industry professionals, many indicated rising expenses was a concern.

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“More than nine in 10 firms (92 percent) indicated that they are concerned to some degree about managing the costs of running their firm at the present, with 52 percent reporting that it is a major concern, and 40 percent reporting that it is a minor concern,” the ABI report states. “Small firms tended to be less concerned about firm expenses than large firms, although firms of all sizes were generally concerned.”

Actual Metal Prices and Trends

The U.S. shredded steel scrap price held flat at $371/short ton.

Chinese rebar fell slightly, dropping 0.2% to $623.84/metric ton. Chinese H-Beam steel fell 6.0% to $606.22/mt.

European commercial 1050 sheet aluminum fell 4.4% to $2,867/mt.

Chinese iron ore PB fines fell 2.8% to $77.06/dry metric ton.

We had a little mythbusting discussion the other day here at MetalMiner®, including, among other examples, that tracking raw material inputs is no predictor of finished product prices.

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Take, for example, iron ore.

Prices fell this spring and have been bouncing around either side of $65/ton. However, in China, the world’s biggest consumer, finished steel prices and production have been ripping along.

According to Reuters, China produced 80.2 million tons of crude steel last month, setting a new daily average production record for a third month in a row at 2.67 million tons.

Despite strong domestic steel prices, China’s steel exports last month rose to 6.94 million tons, their highest level since July 2017. Older, more polluting mills continue to be shuttered as part of Beijing’s program to curb pollution via increased inspections.

Reuters sees this as evidence that newer mills have ramped up operations to cash in on fat margins. China’s steel output in the first half of the year rose 6% to 451.2 million tons.

Richard Lu, analyst at CRU in Beijing, is quoted as saying that mills were earning a profit margin of about 800 yuan ($119.50) per metric ton of steel, while analysts at Huatai Futures put profit margins for mills in northern China at over 1,000 yuan per ton — one of the highest on record, the news source says.

Mill utilization still has further to go though; despite record output, mills are not running flat out. Monthly utilization rates reached 71.6% in June — the highest since October — but suggestive output levels could continue into the winter heating season, even as mills around major cities are made to close to reduce pollution.

However, that would presuppose demand remains robust; signs are beginning to emerge that demand is softening.

RBC Capital Markets mining analyst Paul Hissey is quoted as saying the bank expects steel demand to fall in H2 due to a slowdown in infrastructure and property demand and continued volatility around tariffs.

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Ultimately, a softening in steel demand will lead to a fall in steel prices; it is the anticipation of such that is a factor in falling iron ore prices.

As we noted, the correlation in raw material and finished product prices is stronger in falling markets than rising, despite the raw material price falls leading the finished product.

Source: wto.org

Ultimately, it went along expected lines.

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India and a handful of other nations held trade dispute settlement consultations with the United States over its steel and aluminum tariffs in Geneva, but got absolutely no concession from the latter, according to reports coming out of the meetings.

India, Canada and Mexico confabulated with the U.S. on the issue of the latter imposing additional duties of 25% & 10% on steel and aluminum imports.

Earlier this month, China, Norway and the European Union also held similar talks with the U.S., under the aegis of the World Trade Organization (WTO) in Geneva. Almost all such disputes are held under Article 4 dispute settlement consultations. MetalMiner previously reported about the Geneva meeting and its attempt to try and break the trade tariff imbroglio.

The U.S., as many had expected, stuck to its guns that no law required it to provide any reason for the Section 232 measures on steel and aluminum, since they remain “sovereign determinations” that fall under Article 21 of the GATT 1994, according to media reports.

Apparently, in an earlier meeting, the U.S. told the representative of another country in such a meeting that Section 232 revolved around issues of national security, and was thus not available for review or capable of resolution by WTO dispute settlement.

Representatives of India and other nations raised several questions around the proposed tariffs. They claimed the additional duties constituted a “disguised safeguard” measure, as the U.S. Department of Defense had said that there was no threat to the country’s national security from steel and aluminum imports.

The U.S. delegation, on the other hand, maintained it was unable to share the reasons for the decisions under the Section 232 provisions. Delegates also wondered how countries such as Australia, Brazil, Korea and Argentina had been exempted from similar additional duties, and why these imports did not pose a national security threat to the U.S.

Clearly, unable to get much from the U.S. at this meeting, the only recourse the six nations may have is to approach the WTO with a request to establish a disputes settlement panel to rule against the U.S. measures.

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In March this year, the U.S. had also launched a challenge at the WTO against India’s export subsidies, arguing the programs give Indian companies an unfair advantage. The U.S. claimed these export subsidy programs harmed American workers by creating an uneven playing field on which they must compete.

Andrey Kuzmin/Adobe Stack

The European Union (E.U.) posted a 3% increase in apparent steel consumption during Q1 2018 compared with Q1 2017, according to a recent European Steel Association (EUROFER) report.

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According to EUROFER, the E.U. steel market began 2018 on “relatively strong footing,” but that rising trade tensions could knock the sector off course.

“The latest data confirms the severe impact the US Section 232 tariffs are having by deflecting imports into the EU – with surges across almost all product lines,” said Axel Eggert, EUROFER director general, in a release. “This surge is occurring at the same time as growth predictions are being revised onto flatter trajectories. We cannot risk the ongoing recovery being put at stake– and welcome the recent EU safeguard in its efforts to stabilise the sector.”

According to the report, real steel consumption and seasonal restocking are factors explaining the 3% rise in apparent consumption during Q1.

Domestic deliveries to the E.U. market rose 2.1% during the aforementioned period. Meanwhile third-country imports rose by 9.8% to 10 million tons, hitting the highest quarterly total since Q3 2007, according to EUROFER.

“This confirms that the volume effects of anti-dumping measures imposed by the European Commission over the course of 2017 faded out rapidly due to other third country suppliers filling the gap left by the countries which had duties applied to them,” the report states.

As for steel demand, the EUROFER report projects growth to continue in 2018 and 2019, but notes the uncertainty of “international steel fundamentals.”

“The sharp rise in imports of specific steel product from some third countries confirms that steel trade distortions remain a threat, which could be exacerbated by trade deflection resulting from the Section 232 tariffs applied by the Trump administration,” the report argues.

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Other highlights from the EUROFER report:

  • In Q1 2018, all steel-using sectors in the E.U. posted production growth (except for steel-tube manufacturing).
  • Production activity is forecast to grow 2.8% in 2018 and 1.9% in 2019.
  • Economic growth in the E.U. fell to 0.4% quarter-on-quarter in Q1 2018, down from 0.7% in Q4 2017.

The U.S. Department of Commerce. qingwa/Adobe Stock

Last week, the U.S. Department of Commerce announced it had launched anti-dumping (AD) and countervailing duty investigations of steel rack imports from China.

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The alleged dumping margins in the AD case are 130.0-144.5%, according to a DOC release.

The DOC added there 28 alleged subsidy programs for steel racks, “including five preferential loan and interest rate programs, one debt-to-equity swap program, six income tax and other direct subsidy programs, two indirect tax programs, seven less than adequate remuneration (LTAR) programs, as well as seven grant programs.”

The petition in the case was filed by the Coalition for Fair Rack Imports, which estimates that imports of steel racks in 2017 were valued at approximately $200 million.

Products covered in the investigation includes “steel racks and parts thereof, assembled, to any extent, or unassembled, including but not limited to, vertical components (e.g., uprights, posts, or columns), horizontal or diagonal components (e.g., arms or beams), braces, frames, locking devices (i.e., end plates and beam connectors), and accessories (including, but not limited to, rails, skid channels, skid rails, drum/coil beds, fork clearance bars, pallet supports, column and post protectors, end row and end aisle protectors, corner guards, row spacers, and wall ties).”

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The U.S. International Trade Commission is scheduled to make a preliminary ruling by Aug. 6, with the DOC following suit Sept. 13.