steel price

cars on the road in Shanghai, China

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Just about every review of growth in China — of steel prices or of iron ore demand — contains reference to China’s property market.

Few countries in the world have a property sector that plays such a large and dynamic role in the country’s GDP. Furthermore, few have one that causes such concern among a minority of economists that obsess over the risks the sector poses.

So, a detailed analysis in The Economist is a welcome insight into the scale and scope of the market that underlines why it is such a significant driver of not just GDP but raw material prices and seaborne trade.

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China’s property market and its massive scope

To cite The Economist, every year China starts building about 15 million new homes.

That’s more than quintuple the number in America and Europe combined.

The property sector, both the direct impact of all the construction and its indirect effect on everything from concrete to curtains, accounts for a quarter of China’s GDP. That explains: a) why a runaway property market is such a driver of growth and b) why Beijing is at such pains to progressively control the market. Left unchecked, it poses a huge potential risk.

Chinese real-estate developers are on the hook for more than $100 billion in bond repayments during 2021 alone, according to Moody’s. For the world as a whole, roughly one-tenth of outstanding bank loans to non-financial clients has gone to China’s property sector, whether as financing for developers or mortgages for homebuyers.

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China story steel production

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After global crude steel production rose for four consecutive years, output declined last year, the World Steel Association reported Tuesday.

Global crude steel production drops 0.9% in 2020

Global crude steel production fell by 0.9% in 2020 compared with 2019, the World Steel Association reported.

Production had increased every year from 2015-2019.

Output last year totaled 1.86 billion tons, down from 1.88 billion tons in 2019.

Mirroring its economic recovery compared with the rest of the world, China’s steel production remained strong compared with the rest of the world. China’s output rose from 1.0 billion tons in 2019 to 1.05 billion tons in 2020.

As such, China’s share of global output jumped from 53.3% to 56.5%.

India and Japan, the No. 2 and No. 3 steel producers, respectively, both saw their output decline in 2020. India’s fell by 10.6%, while Japan’s dropped by 16.2%.

Among the top 10 steel producers in the world, only China, Russia, Turkey and Iran posted year-over-year growth.

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This morning in metals news: Cleveland-Cliffs released its preliminary Q4 2020 results; demand for sustainable aluminum is rising in the maritime industry; and U.S. steel prices continue to rise.

Cleveland-Cliffs revenue jumps

Cleveland-Cliffs reported Q4 2020 revenues of approximately $2.2 billion to $2.3 billion.

The total marked a 320% year-over-year jump.

Meanwhile, the firm reported EBITDA of $280 million to $290 million, or up 150% year over year.

Furthermore, the firm tallied steel sales volume of 1.9 million net tons.

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Demand for sustainable aluminum

Oslo-based Norsk Hydro explained that demand for sustainable aluminum products in the maritime industry is on the rise.

“We see the maritime industry has increased its focus on sustainable products, material selection and design in recent years,” said Thomas B. Svendsen, market manager in Hydro. “Electric ferries carry heavy batteries and need lighter materials. The CO2 footprint in the industry needs to be reduced and recycling of material has therefore gained traction. Aluminium is a good fit.”

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London Metal Exchange

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Steel is the world’s second-largest commodity after crude oil. It is 15 times the size of all other metals markets combined in terms of metric tons. Furthermore, it is worth twice their value.

Yet, until recently, it was an industry that saw little use for a futures market. That is primarily because major steel participants enjoyed stable long-term prices for the materials they needed.

Price material volatility

Prices for iron ore and coking coal, two of the essential raw materials for steel production, have become far more volatile in recent years. That volatility has sent price shocks rippling through the supply chain. In turn, it has created volatility in finished steel prices that consumers are desperate to contain.

Enter the major futures exchanges. For over 200 years, the London Metal Exchange (LME) has provided the trade – producers, traders and consumers – the opportunity to hedge their risk across a growing range of base metals.

However, only recently have exchanges such as the LME, the U.S.’s CME and the Shanghai Futures Exchange (SHFE) in China introduced products allowing the trade to hedge raw material and finished steel price risk.

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The Raw Steels Monthly Metals Index (MMI) increased by 16.5% this month, as steel prices showed strength in December.

January 2021 Raw Steels MMI chart

U.S. steel events

The American Iron and Steel Institute, the Steel Manufacturers Association, the United Steelworkers union, the Committee on Pipe and Tube Imports and the American Institute of Steel Construction sent a letter to Joe Biden urging him to keep the 25% national security tariffs on steel imports that were imposed in 2018.

The industry groups emphasized that the tariffs are essential “to ensure the viability of the domestic steel industry in the face of this massive and growing excess steel capacity.”

“Removing or weakening of these measures before major steel producing countries eliminate their overcapacity — and the subsidies and other trade-distorting policies that have fueled the steel crisis — will only invite a new surge in imports with devastating effects to domestic steel producers and their workers,” the letter continued.

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China story steel production

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Continuing our look back at the best of 2020, today we’ll take one last review of the top steel posts of the year here on MetalMiner.

As with metals as a whole, steel prices experienced a rocky 2020.

The coronavirus pandemic slammed metals demand overall, including steel demand. The automotive industry idled production at the end of Q1 and into Q2, severely denting demand.

However, eventually automakers restarted lines and demand returned. As the year has progressed, steel prices have continued to rise and show no signs of slowing down in the near term. The U.S. HRC price, for example, is up a whopping 28.61% over the last month.

With that, let’s take a look back at the most-viewed steel stories of the year.

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Best of 2020: top steel posts

  1. Coronavirus likely to impact steel, iron ore demand in 2020

  2. This Morning in Metals: U.S. steel prices rise

  3. India’s steel sector struggled in 2019 — but what does 2020 hold?

  4. Trump expands Section 232 tariffs on steel, aluminum derivatives

  5. China’s steel industry likely to see cutbacks as stocks rise amid coronavirus crisis

  6. Raw Steels MMI: Index increases by 9%

  7. Raw Steels MMI: U.S. steel prices make gains, aided by auto sector

  8. Stainless MMI: Stainless steel surcharges rise for fourth straight month

  9. Chinese construction steel prices dip amid cluster of new coronavirus cases

  10. Raw Steels MMI: U.S. price increases push three-point index gain

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There has been quite a bit of analyst chatter about the likely impact of China’s return to the steel scrap market next year.

In 2019, the authorities essentially banned steel scrap imports. The move came, in part, because many of the grades were classified as waste. However, of late the rumor is China will be moving to reclassify ferrous scrap as a recyclable resource and could lift the import ban (probably in Q1 2021).

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Steel scrap imports plunge

According to Platts, China has 184 million tons of EAF steelmaking capacity at the end of 2020. Furthermore, the country will likely have 197 million tons by end of 2021.

The totals are up from 175 million ton at the end of 2019, when scrap imports had plunged to just 180,000 tons due to the ban.

Domestic steel scrap production has been on the rise, generating some 240 million tons in 2019. As such, the 2014-18 average annual imports figure can be seen as minuscule by comparison.

But while they may be small, they are not insignificant.

Normally, imports rise and fall relative to the premium arbitrage of domestic prices over world prices. Currently, domestic steel scrap prices in China are said to be about $60/mt or Yuan 400/mt over Southeast Asian seaborne scrap prices on like-for-like grades (when freight and taxes are included).

Should imports be relaxed, there is, therefore, the potential to suck in considerable imports.

Platts suggests this would not top the record 13.7 million tons imported in 2009. Some, however, disagree, saying it could reach 20 million tons.

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auto sale

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The Automotive Monthly Metals Index (MMI) gained 9.6% for this month’s index value, as U.S. auto sales continue to show resilience.

December 2020 Automotive MMI chart

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U.S. auto sales

General Motors switched from monthly to quarterly sales reporting in 2018; Ford followed suit in early 2019.

However, despite the industry trending toward quarterly reporting, Ford has apparently had a change of heart.

The automaker last month announced it would return to quarterly reporting. Ford reported November U.S. sales of 149,931 vehicles, down 20.9% year over year.

Ford truck sales fell 20.9%, while SUV and car sales fell 16.4% and 39.1%, respectively.

Among other monthly reporters, Honda reported November sales fell 23.4% year over year. Honda car sales fell 26.9% and truck sales fell 21%.

Hyundai sales fell 9% year over year in November.

“We were able to maintain our industry-beating sales momentum despite quirks in the reporting calendar and added COVID-19 challenges,” said Randy Parker, vice president of national sales at Hyundai Motor America.

U.S. auto sales forecast to nearly match 2019 levels in November

According to the most recent automotive forecast released by J.D. Power and LMC Automotive, new-vehicle retail sales were forecast to drop 0.7% in November when accounting for changes in selling days.

Meanwhile, for total U.S. auto sales, the forecast included a 3.5% decrease when adjusted for selling days.

“November 2020 is a prime example of why accounting for selling day differences is important in measuring comparable sales performance,” said Thomas King, president of the data and analytics division at J.D. Power. “After two consecutive months of year-over-year retail sales gains, a quirk in the November sales calendar will result in new-vehicle retail sales appearing to fall 12%. This year, November has three fewer selling days and one less selling weekend compared with 2019. When these calendar quirks are accounted for, new-vehicle retail sales are expected to almost match 2019 levels.”

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hot rolled steel

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This morning in metals news: the U.S.’s steel capacity utilization rate reached 71.4% for the week ended Nov. 14; a survey by INVERTO took a look at procurement trends during the COVID-19 pandemic; and steel prices continue to rise.

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Capacity utilization rises to 71.4%

The U.S. steel sector’s capacity utilization rate for the week ended Nov. 14 reached 71.4%, the American Iron and Steel Institute (AISI) reported.

The rate marked an increase from 71.1% the previous week. However, the rate fell from 78.8% during the same time frame in 2019.

Steel production during the week ended Nov. 14, 2020, totaled 1.58 million net tons. The production total marked a 0.4% increase from the previous week but a 13.3% year-over-year decline.

INVERTO releases Raw Materials Study 2020

A survey conducted as part of INVERTO’s Raw Materials Study 2020 delved into the impact of the COVID-19 pandemic on procurement and ways buyers have tried to adapt to the challenges of 2020.

Among its key findings, INVERTO noted of the survey respondents that “supply security is underestimated,” with few expressing concern about raw materials supply in the future.

Furthermore, INVERTO concluded few companies had taken “structured, profound and long-term countermeasures” in response to the pandemic.

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We wrote last month how China’s rapid recovery from the COVID-19 pandemic resulted in the country importing semi-finished products for which it previously had been self-reliant or even a net exporter for the last decade.

Some steel products and primary aluminum swung into becoming significant net inflows for the economy during the summer months.

But as we cautioned at the time, this was only expected to be a temporary phenomenon.

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China’s steel flows recalibrate

Sure enough, although volumes are still down on this time last year, exports have picked up and imports have fallen.

In a recent post, Argus Media reported China’s steel exports in October rose by 5.2% from September to 4.04 million tons. Chinese mills shifted supplies to overseas markets, enabled — or forced, depending on your point of view — by falling domestic prices.

Summertime exports rose as domestic prices fell

Falling domestic prices in the summer aided Chinese steel mills’ ability to export so aggressively.

Domestic inventory levels rose and domestic crude steel production hit record levels of 3.09 million tons a day in September, in large part to meet domestic demand. Weakness in domestic steel prices suggests overoptimism by the steel mills, inevitably resulting in excess production leaking into export markets looking for a home.

Domestic Chinese steel prices have recovered since the summer as global steel prices have risen and imports have fallen.

As the global recovery has lifted demand and prices, mills in India and elsewhere have not felt the need to distress sell metal into China. In addition, the arbitrage window has narrowed.

Imports have therefore appeared less attractive to Chinese buyers and exports more attractive to mills. That is a trend we expect to continue through Q4.

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