Steel

Steel price momentum appears significantly stronger with the start of the year. Steel price momentum shifted in December, showing stronger upward movement.

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Despite the momentum, MetalMiner remains cautious about steel prices.

U.S. HRC and CRC prices. Source: MetalMiner data from MetalMiner IndX(™)

The U.S. Department of Commerce’s Section 232 outcome might also add some support to steel prices this month and until the president makes a final decision. Secretary of Commerce Wilbur Ross released the report to President Trump on Jan. 11. The president has 90 days as of receipt of the report to take action. The contents of the report have not been divulged.

Plate Prices Move Up

Domestic plate prices increased again this week. Prices increased at the very end of 2017; plate momentum seems to have recovered from its previous downtrend.

Source: MetalMiner data from MetalMiner IndX(™)

Plate prices tend to abruptly change price direction. Will this new set of prices signal a continuous uptrend movement for the steel industry? Steel price performance in Q1 will provide buying organizations with clues and road signals.

What About Chinese Steel Prices?

Chinese steel prices, however, currently trade lower than they did in December.

Contrary to U.S. steel prices, Chinese steel prices have held in an uptrend longer than U.S. steel prices. Therefore, we would expect some sideways movements.

Chinese capacity closures might offer additional support to steel prices this year. However, the Chinese government will maintain the current steel output and ensure steel quality meets the required standards.

Last week, the Ministry of Industry and Information Technology stated that China will have stricter rules to build new steel production capacity. Just up to one ton of new capacity will be built for each 1.25 tons of old capacity closed in environmentally sensitive regions. This measure will start this year, which may add support to steel prices.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

What This Means for Industrial Buyers

As domestic steel price dynamics showed strong upward momentum this month, buying organizations may want to closely understand price movements to decide when to buy some volume. Despite slowing Chinese momentum from the previous quarter, prices still remain strong. Buying organizations can expect some additional upward price movement this month.

For specific industrial buying strategies, take a free trial now to our Monthly Metal Buying Outlook. In addition, our February Monthly Outlook will include a detailed analysis of the Section 232 outcome.

This morning in metals news, the metals supply situation is complicated, Russian steel producer NLMK‘s output rose 3% last year and copper dropped the most it had in almost six weeks.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

What is the Supply Situation?

According to Reuters, stocks of metals in LME industrial warehouses fell by 40% last year, meaning tighter supply and a subsequent rise in prices — at least, that’s the conventional wisdom.

But when it comes to the global picture, it isn’t that simple. According to Reuters, some smaller exchanges aren’t experiencing such drops in inventory, which balances out the supply picture.

For example, warehouses monitored by the Shanghai Futures Exchange (ShFE) went up, as did CME Group warehouse inventories in the U.S.

As such, according to the report, only lead and zinc really fit the bill vis-a-vis being tagged with the tight supply label.

NLMK Sees Output Rise in 2017

The Russian steel producer said its 2017 production rose 3% last year, according to Reuters.

NLMK’s crude steel output amounted to 17.1 million tons last year.

Copper Posts Biggest Drop Since Early December

Is the rally coming to an end for copper? It’s a little early to make that declaration, but according to Bloomberg the metal posted its biggest drop Tuesday since Dec. 5.

Copper dropped 1.8% on Tuesday to $7,078 per ton, according to the report.

The metal, often dubbed “Dr. Copper” for its ability to serve as an indicator of overall economic health, had a strong December. However, 2018 hasn’t been as kind.

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LME copper closed Dec. 1 at $6,733 and closed Dec. 29 at $7,156.50 (a rise of 6.3%). In the new year, however, the metal has tracked back, hitting $7,022 as of Wednesday morning, according to MetalMiner IndX data.

The above headline is true, assuming the U.S.’s avowed aim is the health and future of the American steel industry and its workers.

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No one would dispute the idea that the world has too much steelmaking capacity. Many emerging markets and all mature markets are in agreement that excess steelmaking capacity depresses global prices and begats a beggar-thy-neighbor attitude to world trade.

Even taking the elephant in the room out of the assessment, The Economist estimates, by excluding China, global capacity use fell from 86% in 2004 to 69% in 2016, underlining how severe and widespread the problem is.

Source: The Economist

Recent cutbacks in China, recent research from Bank of America Merrill Lynch suggests, mean it is on track to use a full 88% of its capacity in 2018. Steel prices have rallied, mostly due to broad-based rising global growth.

While there are no guarantees that older, less environmentally friendly steel plants closed in the last 12 months will not be replaced by new, more efficient and less-polluting steel plants in the future, recent directives from Beijing suggest it is applying pressure to state governments to limit the permitting of new steel mills.

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This morning in metals news, two new vehicles made mostly with steel represent a victory for the steel industry, iron ore prices are down and the U.S. International Trade Commission (ITC) voted to continue its investigation into common alloy aluminum sheet from China.

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New Ram Pickup, Chevy Silverado Made with Steel

As the steel industry battles to remain the dominant material in automotive construction, the news of two new models constitutes a win for the industry.

Fiat Chrysler‘s new Ram pickup and General Motors‘ new Chevrolet Silverado truck are made mostly with steel, Reuters reported. The announcements represent a big win for steel, which is seeing increasing competition from aluminum within the automotive industry.

As Reuters reported, in late 2014 Ford launched the all-aluminum body F-150. While the versatile metal offered improved fuel economy, it comes at a premium to steel. The interplay between steel and aluminum vis-a-vis automobile construction is something that will need to continue to be monitored going forward.

Iron Ore Prices Drop

As Chinese rebar steel futures fell, so too did prices of iron ore in the face of flagging demand, Reuters reported.

Iron ore on the Dalian Commodity Exchange dropped 2.3% to 535 yuan per ton, according to the report.

ITC Continues Aluminum Sheet Investigation

The U.S. ITC announced Friday that it voted to continue its investigation of common alloy aluminum sheet from China.

“The United States International Trade Commission (USITC) today determined that there is a reasonable indication that a U.S. industry is materially injured by reason of imports of common alloy aluminum sheet from China that are allegedly subsidized and sold in the United States at less than fair value,” the ITC release covering the announcement states.

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Now, a preliminary countervailing duty determination is due Feb. 1 from the Department of Commerce.

After a couple of self-imposed deadlines blown by and a lot of waiting, the next step in the Section 232 process has finally arrived.

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Thursday evening the Department of Commerce announced Secretary of Commerce Wilbur Ross had completed his Setion 232 steel report and sent it on to President Donald Trump. Under the statutory guidelines of Section 232 (derived from the Trade Expansion Act of 1962), Trump has 90 days to respond to the recommendations and act (or not act).

As a result of the investigation, the president could call for tariffs, quotas, or a hybrid tariff-quota solution in an effort to help domestic steelmakers dealing with rising imports.

The department’s announcement did not indicate what the contents of the report were. White House Deputy Press Secretary Lindsay Walters said the president would announce his decision “at the appropriate time,” CNBC reported.

The Section 232 probes into steel and aluminum imports were launched last April. The purpose of the investigation is to determine whether or not the imports pose a threat to the country’s national security. The last Section 232 investigation came in 2001, when it was that determined that imports of iron ore and semi-finished steel did not pose a threat to national security.

Unsurprisingly, reactions rolled in Thursday evening from the metals industry.

“The steel industry welcomes the news that the Secretary of Commerce has formally submitted his report to the president in the Section 232 investigation into the impact of steel imports on the national security,” said Thomas J. Gibson, president and CEO of the American Iron and Steel Institute (AISI), in a release. “We are confident that we have made the case that the repeated surges in steel imports in recent years threaten to impair our national security and we look forward to the president’s decision on the appropriate actions to address this critical situation.”

Scott Paul, president of the Alliance for American Manufacturing (AAM), expressed hope that Trump would not need 90 days to bring the investigation to its conclusion.

“Final resolution of the Section 232 case doesn’t need to take 90 days; we’ve seen more than six months of delays already,” Paul said in a release. “Let’s get this done by the end of January.”

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A rise in imports has been a consistent talking for Trump, with China in particular coming in for much criticism from the president and the domestic industry.

According to a recent AISI report, U.S. steel imports rose by 15.5% in 2017. The estimated finished steel import market share in 2017 checked in at 27% (22% for December 2017 alone).

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This morning in metals news, a law proposed in the U.K. could have a negative impact on the domestic steel industry as the country moves forward with Brexit talks, steel production in the U.S. Great Lakes region has jumped to start the year, four firms have submitted resolution plans for Electrosteel Steels and the U.S. Department of Commerce announced affirmative final determinations in the antidumping duty investigations of imports of carbon and alloy steel wire rod from South Africa and Ukraine.

Need buying strategies for steel in 2018? MetalMiner’s Annual Outlook has what you need

Union Warns About Proposed U.K. Law

A U.K. bill that aims to institute trading provisions for after the U.K.’s exit from the European Union could prove to offer fewer protections than existing E.U. tariffs, members of the Community trade union warned, according to the BBC.

Community union members wrote to Chancellor Philip Hammond, warning that the Customs Bill would not prove as strong as E.U. safeguards against antidumping already in place.

In the letter, quoted by the BBC, the members wrote: “When the UK leaves the European Union we will of course need to set up our own way of preventing unfair trade or dumping of goods. We understand this Customs Bill is putting down the framework for that to happen. But as it is currently written, we fear it will not be effective.”

Steel Production Up in the Great Lakes

Steel production has gotten off to a fast start in the U.S.’s Great Lakes region, the Northwest Indiana Times reported.

Production rose to 640,000 tons for the first week of 2018, constituting a 7.7% jump, the paper reported. Steel mills in the Great Lakes produced 594,000 tons of steel the previous week.

Companies Bid for Debt-Laden Electrosteel

Tata Steel, Vedanta and two other bidders are vying for the acquisition of Electrosteel Steels, which is currently involved in an insolvency resolution process, the Economic Times reported.

Electrosteel was one of 12 companies sent to insolvency proceedings by the Reserve Bank of India, the Economic Times reported.

DOC Makes Affirmative Determination on Wire Rod Imports

The U.S. Department of Commerce announced this morning that it had made affirmative determinations in its antidumping investigation of carbon and alloy steel wire rod from South Africa and Ukraine.

According to a department release, it determined that exporters from South Africa and Ukraine sold wire rod in the United States at 135.46-142.26% and 34.98-44.03% less than fair value, respectively.

The petitioners in the case are companies from four states: Gerdau Ameristeel US Inc. (Florida), Nucor Corporation (North Carolina), Keystone Consolidated Industries (Texas) and Charter Steel (Wisconsin).

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This morning in metals news, China has issued stricter rules on building new steel capacity, Chinese steel production is expected to slow down in 2018 and LME copper rises as the dollar loses ground.

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New Rules to Put the Squeeze on New Capacity in China

China has new, stricter rules on building new steel capacity, the Ministry of Industry and Information Technology said on Monday, Reuters reported.

According to the report, the rules dictate that China will allow one ton of new capacity to be built for a minimum of 1.25 tons of old capacity closed in environmentally sensitive regions.

Chinese Steel Production to Slow in 2018

 In the same vein, Chinese steel production is expected to slacken this year, the Financial Times reported.
According to a poll of analysts, steel output is expected to rise by just 0.6% this year, the Financial Times reported.

Copper Rises as Dollar Falls

London copper picked up some momentum Tuesday as the U.S. dollar fell, Reuters reported.

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That dynamic came on the heels of the metal hitting a two-week low overnight, in tandem with a previous upward run by the dollar.

HRC and HDG prices seem to have recovered a bit since the start of the month. CRC price increases appear less sharp, but may follow suit.

U.S. HRC and CRC prices. Source: MetalMiner data from MetalMiner IndX(™)

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Some steel forms have increased such as CRC and HDG for three consecutive weeks. If the price increases continue at this pace, prices could breach previous levels, which may signal strength and the start of a rally.

Chinese Steel Prices

Chinese steel prices drive U.S. domestic prices. Both usually tend to follow a similar pattern, which means that when Chinese steel prices increase, we would expect a similar movement in U.S. prices.

Despite the Chinese steel price’s cooldown during the last quarter of the year, a new sharp uptrend appears to have started this month.

China HRC and CRC prices. Source: MetalMiner data from MetalMiner IndX(™)

Increasing Chinese prices add strength to the bullish case for steel. Buying organizations may want to follow Chinese prices closely, as they seem to have recovered.

Let’s Remember the Bullish Case

MetalMiner has watched steel prices closely since commodities and industrial metals turned bullish in August 2017.

Although base metals and steel do not necessarily trade in the same direction at the same time, industrial metals do tend to move together. December began with a stronger U.S. dollar caused by expectations of the Congress passing a tax bill. A stronger U.S. dollar caused commodities to fall slightly. However, this commodity downtrend appears short term, as the bullish case remains supported.

What This Means for Industrial Buyers

Buying organizations may want to closely follow both domestic steel prices and Chinese steel prices. Now that the bullish case appears more probable, steel-buying organizations may want to readjust their purchasing strategies.

MetalMiner sends automatic notifications when buying signals trigger a change in purchasing behavior.

Free Download: The December 2017 MMI Report

Take a free trial now to our Monthly Buying Outlook for a short-term analysis.

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This morning in metals news, Chinese steel got a boost on the heels of another round of output cuts, Goldman Sachs executives warns about the potential of a U.S. departure from the North American Free Trade Agreement (NAFTA) and Thyssenkrupp looks to get union backing for its European merger deal with Tata Steel.

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Chinese Steel on the Rise

On the heels of output cuts, Chinese steel got a boost Monday, according to a Reuters report.

According to the report, the most-active rebar on the Shanghai Futures Exchange (SHFE) jumped 1.6%, ultimately closing at 3,912 yuan ($591.26) a ton.

Goldman Warns About NAFTA Exit

Goldman Sachs warned clients that it wasn’t optimistic regarding a positive resolution to the renegotiation talks.
“While we expect the rising odds of tax reform to put less pressure on the trade agenda, we do not expect passage of tax reform will raise the odds of a successful Nafta renegotiation,” Goldman Sachs said in a note to clients, according to Bloomberg. “And so a withdrawal announcement looks more likely than not, even if tax reform is enacted soon.”

Thyssenkrupp Looks to Win Union Favor

As German firm Thyssenkrupp works to execute a merger deal of its European operations with Tata Steel’s, the company is looking to win over its workers’ favor.

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According to Reuters, Thyssenkrupp is offering workers commitments on jobs and investments to get union backing for the deal (which was agreed to in September by the two companies in September).

China is the world’s top producer of steel, but it hasn’t been that good or profitable for years.

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Despite, or more likely because of the supply side squeeze enforced by Beijing, possibly up to 100,000 tons of “illegal” (not approved) production capacity has been closed down. Much of this was Electric Arc Furnaces (EAF) based on scrap raw material and deemed too polluting to be tolerated by Beijing.

In practice, EAF technology is anything but polluting and should be preferable environmentally to the blast furnace route. However, much of China’s capacity was small-scale private plants lacking environmental controls and permits.

According to Reuters, quoting CRU data, China’s steel capacity has fallen by 240 million tons over the past three years to about 1,020 million tons this year. Ironically, production has never been higher. It rose 6% from January to October, according to Reuters, and 2017 is set to be an official record high.

The key word here is “official” because historically none of this “illegal” capacity appeared in the official figures, so approved mills are running at near record capacity, estimated to be 85%, making up for the removal of their domestic competitors. Many of these EAF furnaces were making rebar, so not surprisingly rebar is in short supply and prices are on a tear.

Iron ore, particularly higher grade 65% minimum Fe content iron ore is also doing rather well. Despite port stocks running at over a month’s supply prices have reached over $72/ton as mills re-stock with the most efficient-to-produce and least polluting highest grade ore, according to Bloomberg.

All this rationalisation of supply and robust domestic demand has taken its toll on exports. As we reported earlier this week, China’s steel exports have slumped by a third this year. And as the domestic market gradually moves from a buyer’s market to an allocation-driven seller’s market, prices are rising. Read more