Steel

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Since April this year, the Indian automobile sector has been seeing signs of a slowdown in sales. This has led to job cuts and expressions of concern from some major domestic steel producers.

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The slump in the sales of four- and two-wheelers has forced companies and ancillary automotive supply units to either shut down factories for specific hours (even days) or axe shifts, leading to a reduction in both temporary and permanent workers.

Auto sales for the June quarter are at their lowest in almost two decades, according to the Business Standard, only adding to the worries of domestic flat steel producers.

Many producers are now wondering what the immediate future holds for them.

There are no signs of any immediate revival in auto sales, especially after some economy experts warned of a coming recession in India.

Added to this is the Indian government’s new drive to bring in electric vehicles. Some major automobile companies, already on the path of a switch to electric, have stopped manufacturing diesel vehicles.

Yet, there are steel and automobile industry experts who are downplaying the drop in sales.

T.V. Narendran, CEO and managing director of Tata Steel, told the Business Standard recently that the platform economy (for example, Uber and Ola) is a bigger disruptor than electric vehicles. In his opinion, as more and more people took to cab-hailing apps, the need to have their own vehicles would come down, he said.

In the June quarter, the total sales of cars, sport utility vehicles and vans declined 18.4%, the largest drop since a 23.1% drop in the third quarter of 2000-01. Every segment of the auto industry reported a double-digit decline.

A recent report in India’s national daily, The Hindustan Times, said automobile ancillaries in and around Jamshedpur, where Tata Steel’s main plant exists, were facing tough times due to a series of block closures in Tata Motors in the past month because of a market slowdown. A local association leader told the paper that about 30-odd such ancillary “steel sector companies” were on the verge of closing down, even as a dozen others had already downed their shutters.

The report quoted Inder Agrawal, president of the Aditaypur Small Industries Association, as saying that recession in the auto sector is always cyclical and that he expects things to normalize after September.

According to media reports, because of the automobile sector slowdown, steel companies were diverting products towards alternative segments, such as renewables, oil and gas, and structural steel.

Flat and long steel products are two categories which find application in the auto and infrastructure sectors, respectively.

A report by news agency Reuters said India’s JSW Steel Ltd had acknowledged that a weaker steel market coupled with a drop in global demand and a local slowdown could impact the turnaround time for its newly acquired Monnet Ispat assets. The report, though, added that JSW’s chairman downplayed any substantial impact on financials.

On the sidelines of the company’s annual meeting, Sajjan Jindal, co-chair of JSW Steel Ltd, said his company had always said it could take about two years to turn around and it would try and do it within that time frame.

He called the present slowdown in the automotive sector as “temporary” and was hopeful the sector will bounce back.

Another Reuters report, as published on the Al Jazeera website, said the auto industry has sought tax cuts and easier access to financing for both dealers and consumers to revive the industry.

The report quoted Automotive Component Manufacturers Association of India (ACMA) Director-General Vinnie Mehta as saying the sector was experiencing a “recessionary phase.”

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India’s automobile sector employs over 35 million people, directly and indirectly, according to the report.

The Raw Steels Monthly Metals Index (MMI) fell one point this month for an August reading of 74.

Small price increases for some metals did not outweigh a few steeper price drops, bringing the index down for the month.

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U.S. steel prices seemed to find a bottom recently (at least for HRC, CRC and HDG). Plate prices stopped dropping and moved sideways with the most recent price changes.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese HRC and CRC Prices Move Sideways

Source: MetalMiner data from MetalMiner IndX(™)

Chinese HRC and CRC prices continued to move sideways this month. However, CRC prices showed more strength, with another modest increase in early August, while HRC prices declined slightly as August started, reversing the recent mild uptick that occurred in July.

U.S. HRC and Chinese HRC Prices Start to Diverge Again

Source: MetalMiner data from MetalMiner IndX(™)

Since peaking in mid-2018, the spread between U.S. and Chinese HRC prices began to narrow. The spread hit its narrowest point in about 1.5 years last month when it dropped to a difference of around $37/st — the third-lowest value since January 2014.

The recent increase in U.S. prices increased the spread once more, but it remains low at just $70/st. This does not yet reflect the recent devaluation of China’s currency back to the range of CNY 7-to-1, which should further increase the steel price spread (unless Chinese prices start to rise to a greater extent than U.S. prices).

Source: MetalMiner data from MetalMiner IndX(™)

Chinese and U.S. CRC prices moved more similarly, overall, with both prices increasing again of late.

Similar to HRC, the spread between prices closed quite a bit, but a larger spread remains for CRC. The spread between the two CRC prices currently measures $158/st, up slightly from around $149/st last month — the lowest values seen since late 2017.

What This Means for Industrial Buyers

The global steel prices tracked by the index once again showed mixed performance this month.

The U.S. Midwest HRC futures spot price increased slightly, turning around after last month’s decline. The U.S. Midwest HRC futures 3-month price increased once again this month. China saw mixed price signals, with some prices up and others down.

With prices giving sustained mixed signals, industrial buying organizations seeking more pricing guidance should try a free two-month trial of our Monthly Metal Buying Outlook report.

Buying organizations will want to read more about longer-term steel price trends can do so with the Annual Outlook.

Free Sample Report: Our Annual Metal Buying Outlook

Actual Raw Steel Prices and Trends

Prices in the index showed mixed performance this month.

Korean prices showed a clear drop. Korean standard scrap steel prices dropped by 8.3% to $122/st and pig iron prices fell by 2.6% to $332/st.

Chinese price movements remain mixed. Chinese steel slab prices increased the most (by 3.2% to $489/st). Chinese HRC prices increased by 1.3% to $479/st.

Chinese steel billet decreased by 2.7% to $470/st and coking coal prices dropped by 1.1% to $278/mt. Chinese iron ore prices edged down slightly, by less than 0.5%.

U.S. shredded scrap prices fell by 6.2% to $257/st, while U.S. Midwest futures 3-month price increased by 3.2% to $619/st.

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LME billet 3-month prices dropped 2.7% $268/mt.

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This morning in metals news, Vale’s resumption of activities boosted its iron ore production to its highest level in nine months, ArcelorMittal released its second-quarter financial results and a U.S. judge blocked a planned copper project in Arizona.

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Vale Production Surges in July

After Brazilian miner Vale resumed production at its largest mine in the Minas Gerais state, its iron ore production soared 16.6% in July from the previous month, Reuters reported.

Earlier this year, a fatal tailings dam breach at Vale’s mine in Brumadhinho impacted operations and helped send iron ore prices upward.

ArcelorMittal Releases Q2 Results

Steelmaker ArcelorMittal reported Q2 2019 EBITDA of $1.6 billion and 1H 2019 EBITDA of $3.2 billion, which was down 42.6% on a year-over-year basis.

Second-quarter shipments of steel and iron ore rose 4.8% and 6.1%, respectively, on a year-over-year basis.

“Given weak demand and high import levels in Europe, the Company has taken steps to align its European production levels to the current market demand,” the steelmaker said. “As a result of previously announced European production curtailments, approximately 4.2Mt of annualized production curtailment is scheduled for 2H 2019.”

Judge Blocks Arizona Copper Project

A U.S. judge blocked a copper project previously approved by the U.S. Forest Service, the Associated Press reported.

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The previously approved project included plans for a $1.9 billion mine in Arizona’s Coronado National Forest.

Piped water to all – a new Government of India (GoI) multimillion-dollar scheme announced recently — comes as a pleasant surprise to India’s steel industry.

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Called the “Nal se Jal” scheme (meaning “water connection to all”), this flagship project aims to provide piped water connection to every household by 2024.

Experts are of the opinion that the new scheme will increase the domestic steel demand, which means massive investments in the sector, according to the Sunday Guardian Live.

Because of its durability and greater life span, steel is ideal for water pipelines and other infrastructural requirements for the flagship scheme.

A news report in Live Mint quoted a report by Bank of America Merrill Lynch, which has estimated that India needs to put in $270 billion (about ₹18.5 trillion) over the next 5-15 years to meet its ambitions of piped water supply to all homes by 2024, cleaning the Ganges River, interlinking rivers to redirect water to water-scarce regions and irrigation projects.

Some experts, though, feel the scheme is too ambitious and may not take off.

As of now, only about 18% of rural households in India have piped water supply.

For one, how the scheme will be financed is something the GoI is still trying to figure out.

One option it is toying with is to take part of the investments from consumers in rural India by a nominal monthly fee, according to a report by The Print.

But according to Indian brokerage firm JM Financial, private sector investment will be a must if the GoI wants to go ahead.

The minister in charge has gone on record to state the government was examining the public-private partnership model for water infrastructure projects. This includes BOT (build, operate and transfer), DBOT (design, build, operate and transfer) and the hybrid annuity model (HAM).

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The JM Financial report said the scheme will likely lead to a massive jump in investments in water and sanitation. These will be made in various verticals, such as pipes, EPC, water treatment pumps, and valves and cement, the Hindu Business Line reported.

Global crude steel production reached 925.1 million tons for the first six months of the year, marking a 4.6% increase compared with the same period in 2018, the World Steel Association reported.

Year-over-year production growth has fallen each of the last two months, from 6.4% in April to 5.2% in May.

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Production in Asia reached 660.2 million tons, up 7.4% compared with 1H 2018. North American production ticked up 1.4% to 60.1 million tons, while E.U. production fell 2.5% to 84.7 million tons. The Commonwealth of Independent States (CIS) bloc produced 50.5 million tons, about flat with production levels in 1H 2018.

Production in China continues to remain elevated over 2018 levels. In June, China churned out 87.5 million tons, up 10.0% on a year-over-year basis. However, June production fell from May’s 89.1 million tons.

Worth monitoring is the key steelmaking material, iron ore, which has soared to five-year highs this year.

“Steel prices had been supported by environmentally promoted steel mill closures, restricting supply as government-supported housing construction drove demand,” MetalMiner’s Stuart Burns explained Tuesday. “However, although anti-pollution measures are expected to continue, it will require further stimulus to keep the housing market running at the current pace.”

India’s production rose 4.0% to 9.3 million tons of crude steel in June 2019. As noted by MetalMiner’s Sohrab Darabshaw, Tata Steel announced plans to increase its annual crude steel capacity to 30 million tons by 2025, up from the current 20 million tons.

Japan’s production fell 0.4% on a year-over-year basis, down to 8.8 million tons, while South Korea’s crude steel production fell 2.6% to 6.0 million tons.

U.S. production reached 7.3 million tons in June, up 3.1% year over year. U.S. steel capacity utilization reached 81.1% as of July 20, according to the American Iron and Steel Institute (AISI).

In Europe, Germany’s production fell 5.8% to 3.4 million tons, while Italy saw a 2.5% decline to 2.1 million tons. France’s production rose 3.4% to 1.3 million tons, while Spain’s production ticked up 2.3% to 1.2 million tons.

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Steel production in Turkey, Ukraine and Brazil fell in June on a year-over-year basis.

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This morning in metals news, U.S. and Chinese trade negotiators resumed talks this week, Goldman Sachs is pessimistic about copper supply and smaller Chinese steel mills are shaking off anti-pollution laws in an effort to compete against larger steel firms in the country.

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Trade Talks

After trade talks fell apart in May despite significant optimism, China and the U.S. are back at the negotiating table this week.

Negotiators are meeting in Shanghai for the latest round of trade talks aimed at ending the escalation of tensions that have boiled over throughout the last year.

White House economic adviser Larry Kudlow downplayed the resumption, telling CNBC that he did not expect any “grand deal” coming out of this week’s Shanghai talks.

Copper Supply Troubles

Goldman Sachs is bearish on the copper supply market ahead, Bloomberg reported.

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According to the report, copper treatment charges in China have fallen to their lowest level in seven years, which could engender production cuts.

China’s Small Steel Mills

Smaller steel mills in China are bypassing environmental regulations aimed at stemming pollution in the country, Reuters reported.

According to the China Iron and Steel Association (CISA), smaller steel firms raised production by approximately a quarter through the first five months of the year, compared with 6.2% among CISA’s larger members.

The U.S. imported 13% less steel in the first half of 2019 compared with the first half of 2018, the American Iron and Steel Institute (AISI) reported recently.

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Through the first six months of the year, U.S. total steel imports reached 15.62 million net tons, down 12.7% on a year-over-year basis. Meanwhile, finished steel imports reached 11.68 million net tons, down 16.7% year over year.

Total steel imports in June reached 2.02 million tons, down 2.5% from the May total. June finished steel imports reached 1.71 million net tons, down 8.3% from May.

Finished steel import market share hit 20%, continuing the general flatlining of the figure since market share spiked at 25% in January. Estimated import market share for the first six months of the year is 21%.

By product type, several products experienced big import increases in May compared with April: sheets and strip all other metallic coatings (up 100%); heavy structural shapes (up 98%); reinforcing bars (up 56%); hot rolled bars (up 17%); and standard pipe (up 15%).

In addition, line pipe imports in the year to date increased 11% compared with the same period in 2018.

South Korea led the way in terms of offshore exports to the U.S.

Offshore imports came in at:

  • South Korea (163,000 NT, down 44% from May)
  • Japan (112,000 NT, down 9%)
  • Germany (100,000 NT, up 56%)
  • Taiwan (86,000 NT, up 7%)
  • Vietnam (59,000 NT, down 3%)

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Import totals for the first six months of the year were:

  • South Korea (1.45 million NT, down 17% vs. the same period in 2018)
  • Japan (723,000 NT, down 2%)
  • Germany (617,000 NT, down 7%)
  • Taiwan (522,000 NT, down 7%)
  • Vietnam (427,000 NT, down 16%)

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This morning in metals news, June steel imports in the U.S. declined, U.S.-China trade talks are expected to resume after falling apart in May and copper prices picked up Wednesday.

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June Steel Imports Hit 1.8M Tons

June steel imports in the U.S. fell to 1.8 million metric tons, down from 1.9 million metric tons in May, the U.S. Census Bureau reported Wednesday.

U.S. imports from Korea and Brazil fell, while increases occurred from Canada, Russia and Germany, according to the Census Bureau report. (In May, the Trump administration removed its Section 232 steel and aluminum tariffs vis-a-vis Canada and Mexico.)

U.S.-China Talks Set to Resume

The U.S. and China’s long-running trade talks fell apart in May, but they appear to be set to pick back up next week.

U.S. trade negotiators will head to Beijing for the next round of talks sometime in the next week, CNBC reported.

Talks fell apart in May, as the U.S. accused China of reneging on previous commitments; ultimately, President Donald Trump increased tariffs on a previously announced $200 billion list of Chinese goods.

Copper Prices Rise

News of the resumption of trade talks between the world’s two largest economies spurred upward movement in the copper price.

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LME copper picked up 0.5% to reach $6,000 per ton, Reuters reported.

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This morning in metals news, Steel Dynamics announced the site of a planned new flat-rolled steel mill, Norsk Hydro says aluminum demand is falling in Germany and Canadian aluminum producers are enjoying boosted profits on the heels of the removal of the U.S.’s Section 232 tariffs.

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Steel Dynamics Announces Texas Site for New Mill

Sinton, Texas, will be the home of Steel Dynamics’ new flat-rolled steel mill, the company announced Monday.

“Our planned new EAF flat roll steel mill will be the most technologically advanced facility existing today,” President and CEO Mark D. Millett said. “Our team has selected a suite of technologies based on our proven history of success, that should allow us to achieve steel grades previously out of reach to thin-slab casting technology, while sustaining the low-energy and low-Carbon footprint that is at the core of our steelmaking operations. Based on casting capability of up to 84 inches wide and up to a 5.5-inch cast thickness, it will be the world’s largest thin-slab facility.”

Hydro: Aluminum Demand Slowing in Germany

Aluminum producer Norsk Hydro said aluminum demand in Germany is declining amid slowdowns in the country’s automotive and construction sectors.

Norsk Hydro CFO Eivind Kallevik told CNBC Tuesday that the performance of the automotive and construction sectors in Germany has led to lower aluminum demand.

Canadian Aluminum Operations Enjoy Post-232 World

In other aluminum news, Canadian aluminum operations are enjoying higher profits since the U.S. removed its Section 232 tariffs vis-a-vis imports from the country (and Mexico).

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According to Reuters, among those producers with Canadian operations reaping the benefits are Rio Tinto and Alcoa. Alcoa CFO William Oplinger last week said the company expects an annual benefit of approximately $200 million as a result of the removal of the tariffs.

Recently, the European Steel Association (EUROFER) argued that a series of factors, including rising imports and slowing economic growth, are posing an existential threat to the E.U.’s steel industry.

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Earlier this year, the E.U. imposed steel safeguards in an attempt to protect the bloc’s steel industry on the heels of the U.S.’s Section 232 tariff. However, amid an incremental rise in the steel quota under the safeguards, Europe’s steel sector argues the measures are not effective.

Late last week, the European Steel Association released its 2019-2020 steel outlook.

“The manufacturing sector in the EU may have not seen the worst yet: a deepening escalation of the trade war between the US and several of its main trading partners and a no-deal Brexit would severely impact global trade conditions, trigger a further deterioration in business sentiment and lower investment growth,” EUROFER said in a release. “In that scenario, the EU steel sector would suffer badly because at the same time the risk of import distortions increases due to the expansion of the size of the safeguard measures’ quota both this year and next.”

Axel Eggert, director general of EUROFER, sounded the alarm regarding scheduled increases in the quota under the steel safeguards.

“Given these economic and market conditions the European Commission needs to act now to adapt the steel safeguard measures to reflect these circumstances,” Eggert said. “The repeated rises in the size of the quota this year and next are completely out of step with the sluggish steel market.”

According to the EUROFER report, E.U. apparent steel consumption fell 2.5% in the first quarter of 2019 on a year-over-year basis. EUROFER argues the decline in demand has primarily impacted E.U. steel producers; deliveries from E.U. mills within the E.U. market fell 4% in the first quarter on a year-over-year basis, according to EUROFER.

“The EU steel market is facing severe challenges which are expected to have a negative impact on apparent steel consumption,” EUROFER states. “Following a decline in the first quarter of 2019, real steel consumption is, on balance, expected to stabilise around the year earlier level in the remainder of the year, leading to a total reduction in final steel use by 0.4% over the whole year. Meanwhile, flaws in the design and functioning of the current safeguard measures do not reflect the reality of an EU steel market.”

EUROFER forecasts apparent steel consumption will increase 1.4% in 2020. In addition, the association forecasts output in steel-using sectors will rise 1.1% this year and 1.4% in 2020.

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On a macroscopic level, EUROFER expressed pessimism regarding the bloc’s economic outlook, particularly vis-a-vis exposure to the ongoing U.S.-China trade war.

“The likelihood of increasing economic fragility in the two largest economies of the world – the US and China – do not bode well for global economic growth and trade conditions in the second half of 2019 and in 2020,” EUROFER said. “Given its relative sensitivity to global economic trends, the EU economy is expected to enter a period of below-trend growth. However, growth of domestic demand is forecast to remain sufficiently resilient to prevent the EU economy from sliding into recession.”

The association forecast GDP growth in the third quarter of 1.4% and 1.5% in 2020.