Steel

The Raw Steels Monthly Metals Index (MMI) dropped more significantly compared to last month’s one-point decline, this month falling by four points to 70. Global prices looked weak overall; however, U.S. futures spot prices increased, along with U.S. shredded scrap prices.

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U.S. steel price increases lost momentum in August, as prices for HRC, CRC, HDG and plate all moved more or less sideways.

Source: MetalMiner data from MetalMiner IndX(™)

U.S. capacity utilization fell below 80% recently. Capacity utilization dropped to 78.8% during the week ending Sept. 7, with 1.835 million net tons produced, compared with 1.866 million net tons the week prior. This represented a 1.7% decline compared with the same period last year, according to the American Iron and Steel Institute (AISI).

U.S. shredded scrap prices increased by 14.4% to $294/st, reflecting the shift of production methods toward electric arc furnace (EAF).

Chinese HRC, CRC Prices Move Sideways Once Again

Chinese HRC and CRC prices continued to move sideways overall in August. CRC prices once again increased, while HRC prices moved lower, although neither moved with much power. The spread between HRC and CRC prices increased once again this month after hitting a two-year low a couple of months ago.

Global Production Increases Mildly; Production Drop in China

According to the most recent data available from the World Steel Association (WSA), global production of steel totaled 156.7 million tons in July, up by 1.7% compared to last year. U.S. production totaled 7.5 million tons during July 2019, up by 1.8% compared to July 2018.

China produced 85.2 million tons of steel in July, up by 5% compared to July 2018. However, production dropped compared with June, marking the second straight month of falling production. China’s output in May — the peak for 2019 thus far — totaled 89.1 million tons.

What This Means for Industrial Buyers

While a few prices in the index increased this month, the majority of prices dropped, pulling the index down. However, key steel prices moved sideways.

Industrial buying organizations will still want to watch the market in September for typical seasonal price increases.

Buying organizations interested in tracking industrial metals prices with ease will want to request a demo of the all new MetalMiner Insights platform.

Buying organizations seeking more insight into longer-term steel price trends may want to read MetalMiner’s Annual Metal Buying Outlook.

Free Partial Sample Report: 2020 MetalMiner Annual Metals Outlook

Actual Raw Steel Prices and Trends

Overall, global steel prices weakened during the month of August. However, the U.S. Midwest spot price increased by 8% to $586/st. U.S. shredded scrap prices increased by 14.4% to $294/st.

Chinese prices in the index fell across the board this month. Coking coal prices fell the most — by 14% — to $238/st. Chinese iron ore prices dropped by 4%.

Chinese steel billet decreased by 9.5% to $434/st. Chinese steel slab prices dropped by 8.7% to $462/st, while Chinese HRC prices dropped by 8% to $463/st.

Korean scrap prices increased this month, somewhat reversing last month’s 8.3% decrease, up by 3.9% to $127/st. Korean pig iron fell again this month, dropping by 2.2% to $325/st.

LME billet three-month prices dropped by 9.8% $241/st.

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This morning in metals news, Bank Of America cut its steel price forecast, copper prices dropped and gold lost some of its safe haven luster.

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Gloomy Steel Forecast

Bank of America has cut its steel price forecast and is less than optimistic about steel stocks going forward, Yahoo Finance reported.

According to the report, Bank of America analyst Timna Tanners cut her U.S. HRC price target for the second half of the year from $628 per short ton to $572 per short ton.

Tanners also cut 2019 EPS cuts for U.S. Steel, Nucor, Reliance Steel and Aluminum, Steel Dynamics and Commercial Metals Company, according to Yahoo.

Copper Price Drops

Markets continue to fluctuate on a daily basis based on any sliver of news emerging from the ongoing U.S.-China trade war.

On Friday, despite China’s intention to increase bank lending, LME copper was bid down 0.6% to $5,812 per ton, according to Reuters, after reaching a two-year low earlier this week.

Not so Golden

The gold price posted its largest daily dollar loss in three years, MarketWatch reported, on optimism regarding trade and jobs data impacting its safe haven appeal.

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According to the report, gold on the COMEX for December delivery slipped 2.2% to a two-week low of $1,525.50 per ounce.

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No one would argue that Thyssenkrupp has had its fair share of challenges in recent years.

Formed from a merger in 1999 between steelmaking giants, Krupp and Thyssen, a recent Sky News article observed, makes them both older than the country of Germany.

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Krupp was instrumental in the creation of railways in the country that became Germany and pioneered the Bessemer process, the first way of mass producing steel. During the 1900s, it expanded into heavy manufacturing. Both companies contributed to the miracle of German resurgence after World War II.

Once twin jewels in the German industrial crown, the combined company made a string of what proved to be bad investment decisions in Brazil with a major plate mill and in the U.S. with downstream processing operations.

Eventually, Thyssenkrupp managed to extricate itself with considerable losses. However, buoyed by healthy profits from its industrial products divisions — such as elevators, ships and high-speed trains — it struggled on amid growing demands for change.

But after its bid to hive off its steelmaking division into a joint venture with Tata Steel was recently blocked by the European Commission, talk of the group breaking up has again resurfaced, as its bonds are trading at junk status, according to Reuters. Credit cover is being reduced or withdrawn in some markets for parts of its troubled empire.

The group’s shares will this month be relegated from the DAX after more than 30 years of trading on the country’s flagship blue-chip index (Thyssen was one of the founding members).

The group has scant hope it will ever regain its former status as it seeks to sell off its more lucrative divisions to raise cash.

The latest prospect is the elevator division. Even though it may be the smallest of the quartet that makes up two-thirds of the world’s lifts — along with U.S. firm Otis, Swiss group Schindler and Finland’s Kone — Thyssenkrupp is equally well-regarded.

The most likely buyer at present seems to be Kone; the combined business would be the world’s largest elevator manufacturer, making up 28% of the market. The downside, however, would be a source of profitable revenue would be lost to a group that is currently losing €2.7 million a day ($2.9 million) and has net debts of €5 billion ($5.4 billion) – equal to twice the company’s market value, according to Sky News.

For both suppliers and customers of the group, the most worrying development must be the gradual reduction in credit rating. If suppliers cannot insure their debt, they cannot in many instances supply, thus forcing the group to diversify and fragment its supply base.

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The group has survived many trials and tribulations over the decades. It will no doubt survive the current period, but it will be a different, much reduced Thyssenkrupp that emerges in the decade ahead.

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

This morning in metals news, the U.S. Department of Commerce issued affirmative determinations in its anti-dumping investigation of fabricated structural steel imports, Turkey’s largest industrial group will halt steel production and a U.S. Department of Justice lawsuit poses a roadblock for Novelis‘ bid to buy Aleris.

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U.S. DOC Rules on Fabricated Structural Steel Imports

The Department of Commerce has made affirmative preliminary determinations in its anti-dumping probe of imports of fabricated structural steel from Mexico and China.

The DOC found dumping margins for China and Mexico ranging from 0.00% to 141.38% and 0.00% to 30.58%, respectively.

Meanwhile, the DOC issued a negative determination with respect to imports from Canada.

Turkey’s Largest Industrial Group to Pause Steel Production

According to a report by Ahval, Turkey’s largest industrial group plans to halt steel production due to challenging market conditions.

According to the report, Koç Holding’s Koç Çelik unit will halt production from September until the end of January.

Novelis-Aleris Deal

Novelis‘ planned purchase of Aleris is under scrutiny.

The U.S. Department of Justice filed a lawsuit to prevent the move, citing concerns over potentially higher prices for automotive aluminum sheet.

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The $2.6 billion purchase was initially announced in July 2018.

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India’s growth rate has slowed, which in turn means sluggishness in the manufacturing sector.

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All of the above means lower consumption of steel.

Riding on these developments comes the news that domestic steel producers are sitting on a “larger than usual” steel inventory.

A report in the Business Standard quoted Sushim Banerjee, director general at the Institute of Steel Development Growth, as saying steel inventories are at “alarming” levels of 35 days rather than the more typical 21 days.

The total steel inventory of all primary producers in India is at 2 million tons, up from the more typical level of 1 million tons, according to the Business Standard. Because of such high inventory, domestic prices have fallen by about 20% since April.

Ratings agency Fitch Solutions has revised its 2019 global steel price forecast downward to an average of U.S. $600 per ton from $650, citing weak investor sentiment, the ongoing U.S.-China trade war and uncertainty surrounding the U.K.’s Brexit effort, the Business Standard reported.

Nikunj Turakhia, director at the Steel Users Federation of India, was quoted as saying domestic steel prices were close to the bottom and hoped they would start rising soon.

There is more bad news for Indian steel companies.

Ratings agency India Ratings and Research has revised its outlook on the steel sector to “stable-to-negative” from “stable” for the remainder of this fiscal year. One of the reasons for the downgrade is sluggish demand. The rating agency has also revised downwards its fiscal year 2020 steel demand growth expectation to around 4% from the previous forecast of 7%.

All of this comes as global crude steel production rose by 1.7% in July, with Indian steel production increasing by the same percentage.

Tata Steel has announced a closure of some of its operations in the U.K., which could lead to a loss of about 400 jobs.

It has not been a good year for many steel companies in India; for example, Tata Steel Ltd’s first-quarter profit slumped to its lowest level in more than two years.

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India’s S&P BSE Metal Index has fallen by about 30% so far this year due to the slowdown in the economy and infrastructure.

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The U.K.’s Department for Business, Energy and Industrial Strategy (BEIS) has issued a call for evidence to help inform a planned £250 million Clean Steel Fund.

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According to the BEIS, the fund will “support the UK steel sector to move to a decarbonisation pathway compatible with net zero.”

The government is seeking evidence to help it develop the “detailed design” of the fund, including feedback regarding potential “barriers to realising clean steel ambitions” and “the opportunities to be gained in overcoming these.”

The U.K. has set a target to reduce greenhouse gas emissions by 100% — compared with 1990 levels — by 2050, pursuant to the Climate Change Act of 2008.

According to the BEIS, the primary goals of the proposed Clean Steel Fund are to help facilitate the transition to “lower carbon iron and steel production” to help the sector reach net zero emissions (per the Climate Change Act) and to maximize “longevity and resilience” in the sector by “building on longstanding expertise and skills and harnessing clean growth opportunities.”

“We also intend to establish a new £100 million Low Carbon Hydrogen Production Fund, to support the deployment of low carbon hydrogen production at scale,” the BEIS said. “This could enable a pathway to lower carbon steel production and support broader efforts to decarbonise industry.”

UK Steel, an industry group that champions U.K. steelmaking, responded positively to the call for evidence.

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“Today’s announcement of the Clean Steel Fund is extremely positive news for UK steelmakers and the whole of the UK’s decarbonisation efforts,” UK Steel Director General Gareth Stace said. “The fund is a vital step towards further reducing our carbon footprint here in the UK and will cement our position in a future low-carbon world.”

The BEIS’s 22-page call for evidence document can be found here.

According to a recent American Iron and Steel Institute (AISI) report, the U.S. steel industry operated at a capacity utilization rate of 81.0% for the year through Aug. 24.

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Adjusted year-to-date steel production reached 63.55 million tons, according to AISI, up 4.4% from the 60.86 million tons produced during the same period in 2018. The 2019 capacity utilization rate of 81.0% marked an increase from the 77.3% posted during the same time frame in 2018.

In a more constricted window, production for the week ending Aug. 24, production totaled 1.88 million tons at a capacity utilization rate of 80.6%, up 0.9% from the 1.86 million tons and 79.4% posted during the same week in 2018.

Meanwhile, production for the week ending Aug. 24, 2019, increased 1.1% from the previous week, when production reached 1.86 million net tons at a capacity utilization rate of 79.8%.

Broken down by region for the week ending Aug. 24, 2019, production totaled:

  • Northeast: 202,000 tons
  • Great Lakes: 681,000 tons
  • Midwest: 204,000 tons
  • Southern: 719,000 tons
  • Western: 71,000 tons

Meanwhile, according to another AISI report, U.S. imports of steel for the year through July fell 10.6% on a year-over-year basis. Imports totaled 18.67 million tons through the first seven months of the year. Annualized steel imports come in at an estimated 32.0 million tons, which would mark a 5.1% decline compared with 2018 import levels.

However, in July, imports totaled 3.03 million tons, marking a 48.3% increase compared with the previous month.

Finished steel import market share came in at an estimated 19% in July and stands at 21% for the first seven months of the year.

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According to the AISI report, individual steel products with notable increases in import levels in July compared with June included: cut lengths plates (up 55%), line pipe (up 29%), hot rolled bars (up 24%), plates in coils (up 23%), standard pipe (up 21%), hot rolled sheets (up 19%), sheets and strip hot dipped galvanized (18%), wire rods (up 16%), mechanical tubing (up 16%), sheets and strip all other metallic coatings (up 11%), and heavy structural shapes (up 10%). 

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This morning in metals news, U.S. imports of steel are down 10.6% for the first seven months of the year, U.S. Steel plans to idle its East Chicago plant, and China will raise tariffs on imports of copper scrap and aluminum scrap from the U.S.

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Steel Imports Down 10.6%

U.S. imports of steel dropped 11% during the first seven months of the year compared with the first seven months of 2018, the American Iron and Steel Institute (AISI) reported.

The U.S. imported an estimated 3.03 million tons of steel in July, which marked a 48.3% increase from the previous month.

For the first seven months of the year, imports totaled 18.67 million tons, down 10.6% from import levels for the first seven months of 2018.

U.S. Steel to Idle East Chicago Plant

U.S. Steel announced it will idle its East Chicago plant by mid-November, CNBC reported, which could lead to 150 layoffs.

Shares of U.S. Steel fell 5.3% on Friday, according to the report.

China to Raise Tariffs on Copper, Aluminum Scrap

As trade tensions between the U.S. and China drag on with no apparent end in sight, China announced it will raise its tariffs on imports of U.S. copper scrap and aluminum scrap, Reuters reported.

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China will add an extra 5% to existing tariffs on the scrap metals effective Dec. 15, according to Reuters.

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All indicators seem to show that India may end up being a net importer of steel for the second consecutive year in fiscal year 2020, according to sector experts and ratings agencies.

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The reasons underpinning this development are many.

In a desperate attempt to quell the import tide, the Indian government is said to be actively looking at imposing even more safeguard duties on steel imports. These are reported to be at an advanced stage at India’s Directorate General of Trade Remedies (DGTR), the government body in charge of recommending safeguard duties. In addition, the government is being pressured by the Indian steel lobby (which is led by the large representative body of steel companies, the Indian Steel Association).

The first signs of India continuing to be a net importer this year, too, came from figures out for the April-July period of this fiscal year.

A report by CARE Ratings showed the imports of finished steel products exceeded exports by 1 million tons, according to the Business Standard. Steel exports from India in the period under review declined by 23.4% to 1.5 million tons. Despite a 6% fall, imports of finished steel products remained high at 2.5 million tons, per the Business Standard.

According to another research agency, India Ratings and Research (IRR), the fundamentals of the domestic steel sector are likely to weaken in the current 2019-20 fiscal year (ending March 31, 2020), which includes the risk of softening of prices, elevated raw material prices and weak demand, Argus reported.

Experts say additional safeguard measures imposed on imported steel products by the European Union (E.U.) have dented Indian exports to the trading bloc. E.U. nations like Italy, Belgium and Spain accounted for 5-12% share in India’s total finished steel exports in fiscal year 2019.

In fiscal year 2019, India imported around 3.1 million tons of steel from the Republic of South Korea, followed by 1.8 million tons from China and 1.2 million tons from Japan.

One more worry for Indian steel companies is the plummeting of global iron ore prices. From a five-year high of $121 per ton in July, spot iron ore prices have fallen to $93; iron ore prices are expected to fall further.

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According to the IRR, one area to watch out for is the auction of local ore mines scheduled for March 2020. If there is any delay in the auction schedule, it would lead to a disruption of local steel production.

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This morning in metals news, Chinese iron ore futures fell to their lowest level in 10 weeks, JP Morgan weighed in on the impact of tariffs on U.S. consumers and Tokyo Steel has decided to hold its prices steady for September.

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Iron Ore Slide Continues

Chinese iron ore futures fell to a 10-week low, Reuters reported.

Iron ore prices surged to five-year highs earlier this summer, but have plunged since then.

According to Reuters, the most-traded iron ore contract on the Dalian Commodity Exchange closed down 4.3% to 589.50 yuan per ton.

Tariff Impact

According to an analysis by investment bank JP Morgan, the Trump administration’s tariffs to date have had an average per-household impact of $600, CNN reported.

However, if the Trump administration goes through with the recently announced 10% on $300 billion in Chinese goods, that impact will rise to $1,000 per household.

Tokyo Steel Stands Pat on Prices

Tokyo Steel announced it will hold prices steady for September, Reuters reported.

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According to the report, the announcement marks the second straight month of price freezes from Tokyo Steel.