Steel

hard hat sitting on US banknotes

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The Construction Monthly Metals Index (MMI) rose by 3.2% this month, as January 2021 construction spending picked up.

March 2021 Construction MMI chart

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Construction spending

US construction spending in January reached a seasonally adjusted annual rate of $1,521.5 billion, the Census Bureau reported this week.

The January rate marked an increase of 1.7% from the previous month. Furthermore, the January rate rose 5.8% compared with January 2020.

Private construction rose 1.7% to a seasonally adjusted annual rate of $1,160.0 billion. Within private construction, residential construction rose 2.5% to $713.0 billion in January. Nonresidential construction ticked up by 0.4% to $447.0 billion.

Meanwhile, US public construction spending rose 1.7% to $361.5 billion. Educational construction dipped 0.1% t0 $89.9 billion. Highway construction rose 5.8% to $107.8 billion.

ABI moves up but remains low

The Architecture Billings Index (ABI), released monthly by the American Institute of Architects, reached a January reading of 44.9.

The January reading marked an increase from 42.3 the previous month. However, any reading less than 50 indicates a contraction in billings.

Meanwhile, the design contracts index moved up from 47.0 to 48.8.

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steel

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US steel mills churned out metal at a steel capacity utilization rate of 77.2% for the week ending Feb. 27, the American Iron and Steel Institute (AISI) reported.

See why technical analysis is a superior forecasting methodology over fundamental analysis and why it matters for your steel buy.

Steel capacity utilization gains

Last week’s rate marked a slight increase from the previous week, when steel capacity utilization reached 77.0%.

Production last week reached 1.75 million net tons.

The production total marked a 7.0% decrease from the same period in the previous year. Furthermore, capacity utilization during the same period in 2020 reached 81.3%.

In addition, production for the week ending Feb. 27, 2021, increased 0.2% from the previous week. Production during the week ending Feb. 20, 2021, reached 1.745 million net tons at a steel capacity utilization rate of 77.0%.

Meanwhile, adjusted year-to-date production through Feb. 27, 2021, totaled 14.36 million net tons at a capacity utilization rate of 76.5%. Output is down 8.4% year over year.

At the same point last year, steel capacity utilization had reached 81.9%.

By region, production during the week ending Feb. 27, 2021, totaled:

  • Northeast: 155,000 net tons
  • Great Lakes: 624,000 net tons
  • Midwest: 181,000 net tons
  • Southern: 715,000 net tons
  • Western: 74,000 net tons

Steel prices

Steel prices continue to rise in the US, as buyers struggle to secure supply (even despite slowly gaining capacity utilization rates).

US hot rolled coil closed Monday at $1,204 per short ton, or up 9.65% from a month ago.

Meanwhile, US cold rolled coil rose 8.87% to $1,375 per short ton.

US hot dipped galvanized is up 7.12% to $1,475 per short ton.

Plate is up 9.77% to $1,079 per short ton.

Volatility is the name of the game. Do you have a steel buying strategy that can handle the ups and downs?

earnings sign

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This morning in metals news: Arconic reported its fourth quarter and full-year 2020 financial results; meanwhile, the Census Bureau reported steel import totals; and, finally, hot rolled coil steel prices continue to rise.

Arconic reports Q4, 2020 financial results

Pittsburgh-based Arconic reported Q4 2020 revenues of $1.5 billion, up 3% from the previous quarter. However, the Q4 total marked a year-over-year decline of 14%.

Weaker aerospace volumes contributed to the decline, the manufacturer said. Growth in the industrial and packaging end markets partially offset the decline.

For the full year, revenues of $5.7 billion marked a 22% year-over-year decline.

The company attributed the slide to COVID-19 impacts and production declines due to delays associated with the Boeing 737 MAX.

“Our fourth quarter results demonstrate a steady climb in revenue since the onset of the pandemic as several indicators point to growing customer demand in many of the markets we serve, particularly in the ground transportation and industrial sectors,” Arconic CEO Tim Myers said.

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hot rolled steel

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The US steel sector capacity utilization rate ticked up to 77.0% for the week ending Feb. 20, the American Iron and Steel Institute (AISI) reported.

Steel capacity utilization gains

US steel production during the week ending Feb. 20 totaled 1.75 million net tons, AISI reported.

The total marked a 7.2% year-over-year decline. Furthermore, the weekly output total dipped 0.1% from the previous week.

Capacity utilization the previous week reached 76.9%. Meanwhile, for the same week in 2020, steel capacity utilization reached 81.3%.

Furthermore, production through Feb. 20, 2021, totaled 12.6 million net tons. Capacity utilization during the period reached 76.1%.

The output total marked an 8.5% year-over-year decline from the same period in 2020, when the rate reached 81.9%.

By region, production for the week ending Feb. 20, 2021, totaled:

  • Northeast: 153,000 net tons
  • Great Lakes: 637,000 net tons
  • Midwest: 183,000 net tons
  • Southern: 700,000 net tons
  • Western: 72,000 net tons

Stop obsessing about the actual forecasted steel price. It’s more important to spot the trend

Raw steel production index continues to rise

The Federal Reserve’s industrial production index for raw steel has been gaining since bottoming out last May.

The index fell to a 2020 low of 65.6795 in May (an index reading of 100 is equivalent to 2012 activity).

raw steel industrial production chart from Federal Reserve Bank of St. Louis

Board of Governors of the Federal Reserve System (US), Industrial Production: Manufacturing: Durable Goods: Raw Steel

In December, the index reached 92.1730.

In Q4 2018, the index reached over 106.4, its highest level since Q4 2011.

Steel price gains

Steel prices have continued to gain, as some end users deal with challenges in securing supply for their operations.

HRC, CRC and HDG prices have continued to increase in recent weeks. The US HRC price reached $1,168/st, up 8.25% from the previous month. Similarly, the CRC price increased 13.25% to $1,342/st. The HDG price jumped 8.0% to 1,458/st. 

Meanwhile, plate rose by 4.23% to $984/st $1,036/st. Wire rod fell 1.26% to $39.27/cwt. 

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list of commodities prices

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Investment banks love a super cycle.

It spurs irrational investment and sucks in unwary investors. Furthermore, it encourages passive funds to up their allocation, even if only by fractions of a percent.

But with some $14 trillion invested in US equities alone, even a modest increase in passive investments into ETFs would reap significant rewards in fees.

As such, it may be not surprising that the big boys — like JP Morgan, as reported in Bloomberg, and Goldman Sachs, as reported in the Financial Times (admittedly focused more on oil) — are calling the start of the next commodities super cycle.

Cut-to-length adders. Width and gauge adders. Coatings. Feel confident in knowing what you should be paying for metal with MetalMiner should-cost models.

Commodities super cycle?

On the face of it, they appear to have some foundation.

As a separate post in the Financial Times observes, metals, agricultural and oil commodity indices have risen up to 40% since last July.

In part, this is due to a surge of interest in green-energy projects.

The EU, US and China have all promised to spend big. Hydrogen projects alone could receive €30 billion from the EU.

Copper has rallied to eight-year highs, around $8,375 per ton. The metal is benefiting from strong Chinese demand and the prospects for a more rapid transition to electric vehicles gains momentum. Glencore is quoted as saying world copper demand will double by 2050 and that mine investment is insufficient,

All of that certainly makes for a bullish landscape.

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earnings sign

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While the first half of 2020 posed significant challenges for metals manufacturers and end users alike, some firms have showed signs of recovery in the ensuing months and into 2021.

In the second quarter, steel demand suffered. Automotive manufacturers idled production in North America for a period of about two months last year, beginning in the tail end of the of the first quarter.

Nucor forecasts strong Q1 2021

The Charlotte-based steelmaker said it expects its first-quarter earnings could exceed $900 million.

By comparison, Nucor reported net earnings of $20.3 million in Q1 2020. In Q2 2020, the steelmaker reported net earnings of $108.9 million.

“We are encouraged by positive economic trends and the robust demand we are seeing across our markets,” Nucor President and CEO Leon Topalian said. “We currently expect our first quarter 2021 results to significantly exceed Nucor’s previous record for quarterly net earnings, set in 2008. As we move through 2021, we remain focused on building on our momentum, meeting and exceeding our customers’ needs, and delivering sustainable value creation for Nucor stockholders.”

Cut-to-length adders. Width and gauge adders. Coatings. Feel confident in knowing what you should be paying for metal with MetalMiner should-cost models.

Rising prices

Earlier this month, Nucor Tubular Products announced a price hike in a letter to customers.

The company announced an at least 12% hike for sprinkler pipe products. In addition, A53 products would rise by at least $140.

“This increase is a result of rising raw material costs, strong demand, and volatility of transportation costs,” Nucor said in the price increase notice. “New orders, quotes and contracts not previously confirmed by Nucor will be subject to this increase.”

Overall, this quarter will likely prove much stronger than Q4 2020.

“The Company’s sheet, plate, bar and structural mills continue to forecast increased profitability in the first quarter of 2021 as compared to the fourth quarter of 2020,” Nucor reported. “Realized prices and shipment volumes have increased for Nucor’s steel mills in the first quarter as compared to the fourth quarter of 2020.”

In addition, Nucor said rising raw materials prices will boost the performance of that segment. Nucor owns the David J. Joseph Company, a scrap brokerage. The steelmaker also produces direct reduced iron (DRI), a steelmaking input.

US steel price gains

US steel prices have continued to rise well into 2021.

Hot rolled coil (HRC) closed Wednesday at $1,156 per short ton, or up 9.78% from a month ago. Meanwhile, cold rolled coil (CRC) is up 15.24% to $1,331 per short ton. Hot dipped galvanized (HDG) is up 11.29% to $1,439 per short ton.

Plate price gains have not been as significant; however, plate is up 5.28% to $1,036 per short ton.

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The Raw Steels Monthly Metals Index (MMI) increased for the ninth consecutive month, rising by 0.5% as US steel prices continued to rise.

Buying organizations should continue to buy as needed, as prices remain at all-time highs.

February 2021 Raw Steels MMI chart

Cut-to-length adders. Width and gauge adders. Coatings. Feel confident in knowing what you should be paying for metal with MetalMiner should-cost models.

US steel market

Universal Steel Products, along with four other American steel importing companies, challenged the 25% steel tariff imposed by former President Donald Trump in 2018 under Section 232 of the Trade Expansion Act of 1962.

On Feb. 4, the United States Court of International Trade moved to dismiss the plaintiffs’ cross-motion for partial summary judgment.

Meanwhile, President Joe Biden reinstated tariffs on aluminum imported from the UAE. Trump had rescinded the tariffs on his last day in office. Biden’s decision seems to signal that the new administration sides with primary producers in view of ongoing global overcapacity.

Tariff supporters argue it promotes steel investment, newer technology, increases domestic market share, provides security of supply for steel customers and generates employment. Meanwhile, detractors believe the tariffs directly impact US steel prices.

The graph below, however, shows the correlation between US steel prices and tariffs is not particularly strong.

Rather, the bullish market drives steel prices (as it did in 2018).

Today, steel prices have increased on the back of a bull market. In addition, capacity reductions have led to material shortages, as we see now.

HRC and CRC price comparison chart

US HRC and CRC prices (MetalMiner Insights data)

Chinese steel prices decline

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import tariff

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This morning in metals news: the Coalition of American Metal Manufacturers and Users called on the Biden administration to rescind the Section 232 steel and aluminum tariffs; meanwhile, the Energy Information Administration forecasts US energy-related CO2 emissions to rise after the mid-2030s; and, lastly, US President Joe Biden spoke this week with Chinese President Xi Jinping.

CAMMU urges Biden to ends Section 232 tariffs

The Coalition of American Metal Manufacturers and Users (CAMMU) sent President Joe Biden a letter Wednesday urging him remove the Section 232 tariffs on steel and aluminum.

In 2018, former President Donald Trump imposed the tariffs of 25% for steel and 10% for aluminum.

“By taking action to terminate the Trump tariffs, your Administration can prevent U.S. manufacturers from shutting down production lines, laying off workers, and potentially even closing their doors,” CAMMU said in the letter. “By contrast, the ripple effects of allowing these Section 232 tariffs to remain are substantial. Our member companies report not only record steel prices, but also delivery times stretching 12-16 weeks, causing significant disruptions.”

As we noted previously, however, Biden reversed Trump’s decision to rescind the tariff on aluminum from the UAE (a move he made on his final day in office).

See why technical analysis is a superior forecasting methodology over fundamental analysis and why it matters for your aluminum buy.

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Evraz company name on phone screen

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Crude steel production at Evraz’s North American assets dropped 15.1% year over year in 2020. The drop was due mainly to the COVID-19 pandemic’s impact on the global economy, the Russian group noted.

Evraz output in North America drops

Production for the 12 months totaled 1.58 million metric tons from slightly over 1.86 million tons over the same time in 2019, Evraz stated Jan. 29.

“Turbulence in the oil and gas markets led to lower demand, resulting in decrease of production volumes at Evraz North America,” the group noted.

Increased demand for flat-rolled and construction products drove up Q4 crude production by 27%. Production rose to 423,000 metric tons from 334,000 metric tons in Q3 2020.

Do you know which market conditions are best with different steel contracting mechanisms? Check out our best practices on this topic. 

Evraz in North America

Evraz North America has six plants throughout the United States and Canada. The wholly owned subsidiary can produce up to 2.3 million metric tons per year of crude steel via electric arc furnaces at Pueblo and Regina in Colorado and Saskatchewan, respectively.

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Western European steel factory

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Prices for hot rolled coil in Western Europe appear to be moving away from increases seen in late 2020, as steelmakers there and in Central Europe restart their own crude production and the Lunar New Year in China approaches, market sources told MetalMiner.

“It looks they are more decreasing, rather than rising,” one trader said.

Hot rolled coil prices cool

Some producers have indicated in the past two weeks prices as high as €750 ($900) per metric ton EXW for Q3, traders said. However, they did not say if any transactions have yet occurred at those levels.

The latest offers are up by 25% from the €600 ($720) that Western European mills sought in early December for February rolling and March delivery, due then to higher demand and lower availability (including in the auto sector).

A lack of available transistors needed for vehicles has also prompted automakers to warn of production delays at European, North American and Chinese operations, also impacting demand for the flat-rolled product, sources and news reports noted.

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