Steel

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The World Steel Association yesterday released its Short Range Outlook (SRO), in which it forecasts global steel demand to grow 3.9% in 2018.

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Global steel demand is projected to hit 1,657.9 million tons (MT).

Meanwhile, the SRO forecasts global steel demand will rise by 1.4% in 2019, hitting 1,681.2 MT.

“In 2018, global steel demand continued to show resilience supported by the recovery in investment activities in developed economies and the improved performance of emerging economies,” said Al Remeithi, chairman of the World Steel Association’s Economics Committee, in a release. “Demand for steel is expected to remain positive into 2019, growing at 1.4% globally.”

Within the U.S., Canada and Mexico, 2018 demand is forecasted to rise by 1.7% in 2018 and 1.0% in 2019. E.U. demand is projected to rise 2.2% and 1.7% in 2018 and 2019, respectively. In Asia and Oceania, demand is projected to rise 5.0% this year and 1.3% next year.

Unsurprisingly, the SRO refers to rising global trade tensions.

“While the strength of steel demand recovery seen in 2017 was carried over to 2018, risks have increased,” the report states. “Rising trade tensions and volatile currency movements are increasing uncertainty. Normalisation of monetary policies in the US and EU could also influence the currencies of emerging economies.”

Of course, that tension has a hand in the projected deceleration of demand growth in China, pending government-led stimulus measures.

“Both downside and upside risks exist for China,” the report states. “Downside risks come from the ongoing trade friction with the US and a decelerating global economy. However, if the Chinese government decides to use stimulus measures to contain the potential slowdown of the Chinese economy in the face of a deteriorating economic environment, steel demand in 2019 will be boosted.”

Elsewhere, the report states the E.U.’s steel demand recovery will continue in 2019, driven by domestic demand.

“With business confidence high, investment and construction continued to recover while the automotive market may see slower demand growth,” the SRO states. “Though the economic fundamentals of the EU economy remain relatively healthy, steel demand in 2019 will show some deceleration over the growth seen in 2017-18, partly due to uncertainties resulting from global trade tensions.”

The outlook for Japan is continued stability, the report states, while South Korean demand is expected to contract in 2018, with only a “minor recovery” projected for 2019.

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The full SRO report is available here.

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This morning in metals news, the U.S. is reportedly looking to impose steel quotas on Mexico, the World Steel Association boosts its forecast for global steel demand and U.S. Steel reaches a tentative agreement with United Steelworkers to avoid a potential strike.

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U.S. Eyes Mexico Steel Quotas

According to Reuters, citing the top trade negotiator for the incoming Mexican government, the U.S. is looking to impose steel quotas on Mexico as part of negotiations around removal of the existing Section 232 tariffs (which remain in play despite the recently agreed upon NAFTA deal, now called the United States-Mexico-Canada Agreement).

MetalMiner’s Take: If Canada or Mexico are granted quotas, domestic steel prices may continue decreasing slightly. Currently, steel imports from both countries are both subject to a tariff current situation on steel imports is for a 25% tariff from both countries.

Domestic steel prices are currently in a short-term downtrend, but still remain high. Buying organizations may want to understand steel trends to buy forward when prices start the uptrend again.

Global Steel Demand Forecasted to Rise

The World Steel Association doubled its steel demand forecast for 2018 and 2019, Reuters reported.

According to the report, steel demand is projected to rise 1.4% next year, up from a 0.7% projection in April.

Making a Deal

U.S. Steel announced Monday that it had reached a tentative deal with United Steelworkers, according to a MarketWatch report, staving off a strike.

On the heels of rising steel prices, workers had demanded an increase in wages. The deal covers approximately 16,000 workers across the country, according to a United Steelworkers release.

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Contract negotiations began over the summer and have continued long past Sept. 1, when the previous contract officially expired.

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This morning in metals news, Credit Suisse has downgraded the outlook for the U.S. steel sector, a Turkish steel company CEO is optimistic the U.S. will roll back the recently doubled Section 232 metals tariffs and Brazilian miner Vale posted record Q3 iron ore output.

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Credit Suisse Downgrades U.S.’s Steel Sector

Citing oversupply, Credit Suisse downgraded its rating of the U.S. steel sector, Reuters reported.

According to the report, Credit Suisse downgraded the sector’s rating from “overweight” to “market weight.”

Turkish CEO Optimistic on Rollback of Doubled Section 232 Tariffs

Earlier this year, the U.S. doubled its Section 232 metals tariffs vis-a-vis Turkey, bringing them to 50% and 20% for steel and aluminum, respectively.

But one CEO of a Turkish steel firm is hopeful the tariffs will return to their original levels this week.

Ugur Dalbeler, CEO of Colakoglu Metalurji, said he was hopeful the decision would come down this week, according to S&P Global Platts.

Vale Posts Record Q3 for Iron Ore Production

It was a productive third quarter for the Brazilian miner’s iron ore operations.

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According to a Reuters report, Vale reported its iron ore output jumped 10.3% in the quarter compared to the previous year.

Loss-making balance sheets and cost-cutting in — or lax — oversight of health and safety can go hand in hand; they are often examples of poor management.

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The aforementioned also sometimes go hand in hand with state ownership – in both the developed and developing world.

So maybe it should come as little surprise that, according to a Financial Times report, there has been yet another fatal accident at a loss-making, state-owned Indian steel plant.

For foreign buyers of Indian steel, the red flag is loss-making, state-owned manufacturers also have some of the worse reputations of poor quality.

This latest incident is the announcement involving the death of nine workers and injury of 14 following a fire during maintenance at Steel Authority of India Ltd’s (SAIL) Bhilai plant early last week. The Bhilai plant, in the central state of Chhattisgarh, is the largest operation among SAIL’s plants, and is to be expanded from an annual output of 3.7 million to 6.6 million metric tons.

The Financial Times reports Bhilai had already been the site of one of India’s worst recent industrial accidents in 2014, when six people were killed and more than 30 injured by a gas leak. Two years before that, 19 people were killed in an explosion at the Visakhapatnam Steel Plant, another state-controlled company.

Although the private sector in India is making significant strides in terms of both quality, safety and good governance, the state sector continues to lag behind.

Last year, the British Safety Council estimated 48,000 people die annually in occupational accidents in India, often as a result of poor regulatory oversight, the Financial Times reports.

SAIL is not alone among Indian state enterprises with respect to safety issues — but being one the largest makes it also one of the worst.

The firm reported a net loss of Rs 2.8 billion ($37 million) for the year ending in March, its third consecutive annual loss. However, the Financial Times reports accidents have hit state-run companies in other sectors, notably power utility NTPC, where 43 people died from an explosion of a boiler in northern Uttar Pradesh state last year.

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State enterprises are big employers in India. As such, the government is slow to implement rapid change. Those jobs are clearly not without their risks and the lack of reform continues to not only affect profitability, safety and product quality.

The Stainless Steel Monthly Metals Index (MMI) traded sideways in October. The current index stands at 72 points, back at January 2018 levels.

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The sideways trend was created by a less volatile nickel price and lower domestic stainless steel surcharges, while stainless steel prices overseas inched higher.

As MetalMiner highlighted last month, the drop in the index comes as a result of a MetalMiner adjustment to a couple of metals that make up the Stainless MMI. The adjustment is not due to a dramatic fall in nickel or stainless prices.

LME Nickel

LME nickel prices traded lower in September, but then switched to a sideways trend in October.

Nickel prices were more volatile in September, showing two sharp movements (down and up) at the beginning and the end of the month. Despite the recent downtrend, nickel prices have remained in an uptrend since last summer (June-July), when prices started to increase sharply.

Source: MetalMiner analysis of FastMarkets

Global Nickel Tightness

The Philippines, the world’s top supplier of nickel ore, will start limiting the land mines can develop following new environmental rules.

Under these new rules, mines will have a 20-meter “buffer zone” or ban on metal extraction. Nickel miners will see production limits ranging from 50-100 hectares (123-400 acres).

President Rodrigo Duterte has advised miners to reforest areas where they operate to reduce environmental concerns. In addition, all small-scale activities in mountainous regions stopped after the Mangkhut typhoon.

According to government data, nickel ore output decreased by 10% in the first half of 2018 when compared to last year’s 9.43 million tons during the same time frame. The output drop came as a result of the suspension of 11 mines this year, which had zero output during this period.

Domestic Stainless Steel Market

Domestic stainless steel surcharges fell for the third time since the beginning of the year.

The 316/316L-coil NAS surcharge fell to $0.94/pound, while the 304/304L decreased to $0.65/pound.

Source: MetalMiner data from MetalMiner IndX(™)

The pace of stainless steel surcharge increases seems to have slowed this month, along with steel (and stainless steel) price increases.

However, stainless steel surcharges still remain well above 2015-2017 lows.

What This Means for Industrial Buyers

Stainless steel price momentum slowed down slightly this month. Stainless steel’s slower momentum seems to go together with slower domestic steel price momentum. However, nickel prices still remain strong.

Buying organizations may want to follow the market closely for opportunities to buy on the dips. To understand how to adapt buying strategies to your specific needs on a monthly basis, request a free trial to our Monthly Outlook now.

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Actual Stainless Steel Prices and Trends

Both Chinese 304 stainless steel coil increased by 0.85%, while the Chinese 316 stainless steel coil price increased this month by 0.88%.

Chinese Ferrochrome prices decreased this month by 0.35%, down to $1,841/mt.

Nickel prices also increased slightly this month, rising 0.23% to $12,600/mt.

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This morning in metals news, Gillette gets a break from the U.S.’s Section 232 steel tariff, Century Aluminum strikes a deal to keep its Charleston smelter going through at least 2020 and Indian steel mills are increasingly looking outside the country for iron ore.

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Gillette Exempted from 232 Steel Tariff

Companies continue to seek exemptions from the U.S.’s Section 232 steel and aluminum tariffs, as they argue U.S. producers do not make the metal they need in the appropriate quantity, quality or type.

The latest firm to win an exemption is razor blade maker Gillette, CNN reported. According to the report, parent company Procter & Gamble said Gillette has imported steel for its razor blades from a Swedish supplier for more than 20 years.

Century Aluminum Signs Power Contract Extension

Aluminum producer Century Aluminum has signed a contract with its electricity provider that will see its Charleston smelter remain open through at least 2020, according to The Post & Courier.

MetalMiner’s Take: Aluminum buyers can breathe a sign of relief that Century Aluminum signed an extension deal through 2020 for electricity to power its Mount Holly pot lines.

But going forward, Century will certainly need to avail itself of obtaining the lowest-cost electricity on the open market; energy remains a primary cost driver for aluminum production.

The market for certain commercial alloys of semi-finished materials remains severely constrained within the U.S. market.
The trade cases, sanctions, plus the tariffs have eliminated over 150,000 tons of semi-finished material to U.S. buyers. Although some of this material will come from European and other alternative suppliers (the U.S. market remains quite profitable to those suppliers), federal, state and local government authorities will want to work in tandem to ensure existing primary and secondary aluminum production stays online.

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

Indian Steel Mills Look to Other Sources for Iron Ore

According to the Economic Times, Indian steel mills are starting to look outside the country for sources of iron ore due to difficulties in transporting the ore from Indian mines.

The Raw Steels Monthly Metals Index MMI again traded sideways this month.

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This marks the third consecutive month the index has held at 89 points. The current Raw Steels MMI is at May 2018 levels.

Domestic steel prices have decreased sharply and steel price momentum seems to have slowed. Prices traded lower in September and continued the downtrend in October. Buying organizations may want to remember that domestic steel prices have remained at more than seven-year highs this year.

Source: MetalMiner data from MetalMiner IndX(™)

All forms of steel fell in September. HRC, CRC and HDG showed weaker momentum. Meanwhile, plate prices held stronger in September. Plate prices had the support of low metal availability.

However, plate prices started to lose momentum and decrease at the end of the month.

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This morning in metals news, Norsk Hydro plans to restart its Alunorte alumina refinery, Shanghai steel rebar prices fell and Turkey plans to impose steel import quotas.

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Aluminum Prices Back Down

After surging last week on news of Norsk Hydro’s shutdown of its Alunorte alumina refinery, aluminum prices have come back down on the latest Alunorte.

According to Reuters, Norsk Hydro plans to restart the refinery after having acquired a permit to use technology that would extend the life of the refinery’s disposal area.

MetalMiner’s Take: The news of Norsk Hydro planning to restart production in Alunorte drove LME aluminum back to its $1,970-$2,170/mt band.

Aluminum prices decreased on Monday for the second consecutive day as supply concern eases. LME aluminum prices increased sharply last Wednesday, driven by potential supply concerns. 

The recent aluminum peak was a reaction of alumina supply concerns. However, tightness in the aluminum market may support prices in the long term.

Shanghai Rebar Prices Drop

Shanghai steel rebar prices fell Monday on concerns of rising inventories, Reuters reported.

Turkey Plans to Impose Steel Import Quota

In response to what it says has been a surge in imports, Turkey plans to impose an additional 25% duty on imports exceeding planned quotas, according to a Reuters report.

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In a World Trade Organization (WTO) filing, Turkey argued duties imposed by the U.S. and other countries have led to steel supplies being diverted to Turkey.

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This morning in metals news, the Aluminum Association expressed its disappointment in the United States-Mexico-Canada Agreement (USMCA), the Pentagon is reviewing the U.S.’s dependence on foreign sources of critical materials (including rare earths from China) and Section 232 steel tariff exemption requests continue to rise.

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Section 232 Aluminum Tariff

Not everybody was happy with the recently hailed United States-Mexico-Canada Agreement (the agreed-upon rebrand of the North American Free Trade Agreement, or NAFTA).

The Aluminum Association on Monday expressed its disappointment that the deal did not address the Section 232 aluminum tariff, which continues to apply to both Canada and Mexico.

“The Aluminum Association is disappointed that the Section 232 aluminum tariffs were not addressed as a part of the United States-Mexico-Canada Agreement (USMCA),” Aluminum Association President and CEO Heidi Brock said. “Now is the time for the United States to work with Canada and Mexico to provide a full exemption – without quotas – for aluminum imports from those countries. This should occur as soon as possible, and certainly before the final agreement is signed.”

MetalMiner’s Take: A confluence of factors continue to significantly impact aluminum prices and availability.

In terms of availability, Hydro’s Alunorte alumina refinery in Brazil has halted production due to an environmental dispute with the Brazilian government (alumina is the key raw material used to make aluminum). This sent aluminum prices up by 2% today.

The fact that the newly negotiated USMCA did not address the 232 tariffs on aluminum means the 10% tariffs on Canadian aluminum remain intact, which will also continue to support aluminum prices. Buying organizations are now experiencing a real tightness for semi-finished materials and many must source offshore or via Canada to meet manufacturing production schedules. The sanctions on Rusal also go into full effect Oct. 23.

Pentagon Reviewing Sources of Critical Materials

It’s no secret that the U.S depends on foreign sources for a number of critical materials, including, among others, rare earths from China (used in a wide variety of high-tech applications).

According to a Reuters report, the Pentagon is reviewing the U.S.’s dependence on certain critical materials, with plans to eventually release a report of its findings. In addition, the report indicates China will serve as a primary focus of the review.

Exemptions Continue to Rise

Requests from U.S. firms looking to win exemptions from the U.S.’s 25% steel tariff have continued to pour in, even into October, seemingly far exceeding what the Department of Commerce had initially expected when the process began in June.

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According to a MarketWatch report, as of Oct. 1. 35,872 steel tariff exemption requests had been filed, with 5,954 requests having been approved (9,057 decisions have been posted).

In recent years China’s steel sector — particularly the large, state-owned steel mills — have benefited from the enforced closure of capacity on environmental grounds during the winter heating season.

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Contrarian as it may at first sound, closure of private mills largely — on the basis they are unregulated  and are supposedly the most polluting steel mills — was a boost to larger competitors.

About 140 million tons of “illegal” production was closed last year, Reuters reports, only for capacity to be further restricted by Beijing’s war on smog during the winter heating season. The forced closure of steel mills in 26 cities around Beijing and Tianjin hit national output, accordig to the report, contributing to a year-on-year contraction in output during November and December last year.

Demand, however, remained buoyant. As a result, prices rose and exports, the relief valve for excess capacity, fell.

Source: Reuters

It should be no surprise that steel mills in the rest of the world all benefited from less competition and, as a result, higher prices (long before America’s 25% steel import tariffs lifted prices further). Indeed, cumulatively, strong domestic demand and state meddling on environmental grounds have allowed China’s steel sector to make good money and focus on the buoyant domestic market for the last two years.

That may be about to change.

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