Steel

On August 2, the United States officially added integrated steelmaker Magnitogorsk Iron & Steel (MMK) and its chairman Viktor Rashnikov to its list of sanctioned entities. The move is yet another punitive measure in response to Russia’s February invasion of Ukraine, in hopes that the steel manufacturing sanction will place more economic pain on Russia.

Steel Production

The announcement came from The Office of Foreign Assets Control (OFAC), part of the US Department of the Treasury. It was part of a new round of sanctions targeting individuals and entities close to the Kremlin. In this case, many of the targeted companies are major revenue generators for the Russian regime. The office added that Rashnikov had “also been sanctioned by Australia, Canada, the EU, Switzerland, and the UK.”

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Steel Manufacturing: MMK is a Major Russian Steel Producer

There’s no escaping the fact that Magnitogorsk Iron & Steel manufacturing plant is one of the largest steelmaking facilities in the world. According to OFAC, Magnitogorsk Iron & Steel remains another major taxpayer who helps keep the Russian government’s coffers full. As of the August 2 notice, parties have until September 1 to wind down any current transactions with MMK or its subsidiaries. This includes any asset in which the Russian company holds a 50% stake or more, be it directly or indirectly.

According to a February 28 report, MMK produced almost 14 million metric tonnes of crude steel last year. This represented a 17% increase year over year, which is hardly insignificant. Most of this is cast into billets and slabs for sale or rolled into various flats and longs products. The company also reported a full-year EBITDA of $4.29 billion, up by 188% from the nearly $1.5 billion it earned in 2020.

Revenues in 2021 were 85.6% higher ($11.9 billion) then 2020, when the company brought in just $6.4 billion.

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New Sanctions Spread to MMK’s Turkish Subsidiary

The latest sanctions also extend to the Russian group’s subsidiary MMK Metalurji, which is located in south central Turkey’s Hatay Province. This is significant as MMK Metalurji has an HDG line with a capacity of 900,000 metric tons per year. The site can also roll around 755,000 metric tons of cold rolled coil annually. Further downstream, the site can produce up to 400,000 metric tons of pre-painted, galvanized coil.

MMK Metalurji can also roll 2.3 million metric tons of HRC per year thanks to an electric arc furnace on site. However, it’s important to note that the hot end underwent testing in 2021 after being off stream since 2012 due to poor economic conditions. Either way, this represents more than just a little “collateral damage” in the steel market. However, as far as OFAC is concerned, any parties having business dealings with MMK Metalurji or any of its 50%-held assets have until January 31, 2023, to wind down transactions.

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Insults Aside, Experts Predict the Move Will Have Minimal Effect

MMK said in an August 3 statement that it considers the sanctions against the plant and Rashnikov  “unreasonable and counterproductive.” “The company is studying the decision taken by the US authorities, assessing its potential effect and the possibility of challenging the imposed sanctions by all available means,” the company said.

However, according to one analyst, the sanctions will likely have little to no effect on the company. “MMK was very poorly represented on the US market,” the source said. “The distance from Magnitogorsk to the United States also makes logistics difficult. Whereas rail connections to China make it an attractive export market for the steelmaker.”

US and China

It makes a lot of sense. After all, MMK is in Chelyabinsk region, which averages about 2,650 kilometers (1,646 miles) from ports like St. Petersburg, Kaliningrad, and Novorossiysk. These are the nearest places where the Russian steel gets transferred to ships for further transport. And given these logistical demands, it’s not surprising that the US doesn’t see much of the company’s product.

It’s also worth noting that back in April, MMK announced plans to increase cooperation with markets in Central and Southeast Asia. Here, as in China, the risk of sanctions is virtually nonexistent.

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The Automotive MMI (Monthly Metals Index) dropped by 6.32% this past month, a downward trend it has been maintaining since May. The drop comes despite valiant efforts to put out some of the fires plaguing the car manufacturing industry. But with the microchip shortage, surging inflation, and issues with both supply and demand, the automotive market can’t seem to catch a break.

Automotive Index

Source: Insights

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J.D. Power Quality Study Puts “Premium Vehicles” on Blast

In an automotive market this tight, the industry does not need bad press. Unfortunately, that’s exactly what happened when leading market research firm J.D. Power published its latest report this past weekend. The 2022 U.S. Initial Quality Study (IQS) took the time to highlight the issues currently afflicting the industry. However, they also called out “premium” car companies for their extensive quality issues.

How bad? Apparently, this proved the highest number of vehicle problems reported in the 36-year history of the study. In fact, J.D. Power charted an 11% increase in “problems per 100 vehicles” compared with 2021. The report also stated that the vehicle quality has declined across the board since the pandemic,  pricier models had more quality issues than more affordable cars.

car manufacturing

This largely has to do with cars having so many more “bells and whistles.” After all, many of these high-end features require increasingly rare components. You might remember hearing how BMW now offers its heated seat function on a subscription basis. While this may not become the norm, it shows a a symptom of a very large problem.

According to J.D. Power’s Director of Global Automotive, David Amodeo, “automakers continue to launch vehicles that are more and more technologically complex in an era in which there have been many shortages of critical components to support them.” He also added that “given the challenges automakers and their dealers had to face in the past year, it’s somewhat surprising that initial quality didn’t fall even more dramatically.”

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Car Manufacturing Experts are at a Loss

This weekend, Automotive News published an article detailing the difficulty of forecasting the car manufacturing industry. The crux of the argument being that there are so many problems at work that analysts can’t account for all the different variables.

It’s rare for analysts to throw up their hands and say, “we simply don’t know,” but not completely unheard of. That said, this doesn’t necessarily mean we can stop listening to experts. In fact, it might be smart to think of this as a “call to attention.” That is, those investors who previously followed just one or two forecasting sites would do well to get a second, third, and fourth opinion.

Car Manufacturing

Fortunately, numbers are still numbers. For instance, LMC Automotive found that U.S. new light vehicles (NLV) sales were just 6.78 million from January to June. However, the National Auto Dealers Association found that NLV sales for July had actually gone up by 2.5%. It’s good news, sure. However, it’s important to remember that those figures are still down 8.9% from 2021.

And while those numbers are all factual, they don’t paint as clear a picture as they would in a normal market. Until some of these extenuating factors are mitigated, it will be hard for investors and buyers to find solid footing in the car manufacturing industry.

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UK Experts Feel They’re Falling Behind the EV Car Manufacturing Curve

A recent editorial in The Guardian gave voice to many UK residents who feel their government isn’t taking steps to meet electric vehicle demand. It’s true that the country is dealing with a lot. Their Prime Minister, Boris Johnson, recently resigned, inflation recently clocked in at 9.4%, and the cost of living soared.

But there are also other concerns. For instance, the UK produces a wide range of automobiles, including Jaguars, Minis, and Land Rovers. The UK also saw a huge rise in the demand for electric vehicles. However, many feel that the UK fell behind other European nations. This isn’t just in terms of EV production but in terms of component production as well.

EV batteries contain lithium, cobalt, and nickel, supplies which are hard to shore up – especially now. And while the rest of Europe is building some 35 batter Gigafactories at the moment, the UK so far has one. To make matters worse, little action was taken on behalf of manufacturers to get the ball rolling on more.

Lithium Ion Battery

Jaguar / Land Rover, for instance, has expressed interest in moving its EV production to Slovakia. Meanwhile, a proposed gigafactory in Coventry has been tied up in debate for months. And while the current Sunderland factory may expand in the future, experts estimate the country will need at least six more factories to meet future demand.

In short: the country isn’t where it needs to be, and there’s no plan in place to get it there. Though they certainly have “bigger fish to fry” at the moment. The UK cannot ignore its automotive market.

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Automotive MMI: Actual Metal Prices and Trends

  • Chinese lead prices declined, but only slightly. Prices dropped 0.4% to $2,235.22 per metric ton.
  • Korean aluminum saw no change in price. Following suit with July, prices currently sit at $4.28 per kilogram.
  • US palladium bars fell quite a bit in price. The index dropped 16.11% and currently sits at $1,862 per ounce in bar form.

Steel prices have waxed and waned more than usual this past year. MetalMiner has reported extensively on all of the various factors contributing to this unpredictability. Of course, you can’t ignore China’s rolling COVID lockdowns or the year-long supply chain hangups. However, we feel one of the biggest X factors for the global steel supply has been Putin’s disastrous war on Ukraine.

hot rolled steel

The War Limps Past the Five-Month Mark, Steel Supply Suffers

Back on February 24th, few analysts could have predicted the path the Russian invasion of Ukraine would take. For instance, Russian state news has largely played down the significant casualties suffered in the country’s recovery of the Donbas region. Meanwhile, foreign correspondents have repeatedly published reports about confused Russian troops, jury-rigged weaponry, and the embarrassing loss of the country’s flagship, the Moskva.

Despite these setbacks, Putin seems utterly committed to achieving his goals in Ukraine. This means the world at large cannot expect a return to normalcy anytime soon, particularly when it comes to economics. From sanctions to pipeline problems to commodities hangups, the war in Ukraine has made itself figurative “wrench” in the global trade machine. One of the most affected commodities, of course, is steel.

The War as of July 2022.
Source: Wikicommons

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A Dramatic Impact on Prices and Production

Ukraine stands as the world’s eighth largest producer and third largest steel exporter. Iron ore and other mineral resources are also abundant in Ukrainian soils. As a result, when the invasion first took place, steel prices took a significant leap upward. HRC, for instance, jumped from $974 a ton to $1185 in just over a week. Steel rebar followed suit, reaching $753 on March 7 after closing at $694 the day the war began.

Back in April, the CEO of Kyiv-based commodities site GMK Center, Stanislav Zinchencko, published his thoughts on the matter. Specifically, he mentioned how the war has significantly affected supply chains, leaving 90% of steel capacities non-operational. He went on to detail how the conflict had reduced export opportunities due to Russian warships blocking the Black Sea.

“About 1/3 of Ukrainian steel capacities are located in Mariupol – Azovstal and Ilyich Iron and Steel Works,” Zinhencko said. At the time, this was the hottest area of the war. As most of us know from the heavy news coverage, Azovstal has since been completely destroyed in a weeks-long siege. Ilyich was also heavily damaged. However, since Mariupol fell securely in Russian hands, its ability to produce or not produce remains a moot point.

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A Two-Sided Problem for Global Steel Supply

Against all odds, Ukraine is still producing steel, but at a reduced capacity. For example, at the end of April, we reported on Zaporizhstal, the country’s fourth largest steelmaker, as well as Kamet Steel in Dnipro. Both of these facilities have seen little, if any, impact from the war as of yet. For that reason, they are still producing much as they would in peacetime. In fact, in an effort to boost the country’s economy, the Biden administration lifted tariffs on Ukrainian steel exports in early May.

But all the (completely understandable) focus on Ukraine, it’s important to remember that there are two sides to the problem. Firstly, Russia remains the world’s third-largest steel exporter, shipping around 33.3 million metric tons in 2018. Secondly, as part of their sanction packages, the US and Europe have banned steel imports from the country in an effort to deal Putin an economic blow.

Unfortunately, there are still plenty of buyers for Russian steel. Still, as Bloomberg has reported, many of these nations demand huge discounts that dramatically reduce profitability. The Asian market, in particular, has developed a particularly strong appetite for cheap Russian metals, and beleaguered metals traders have been forced take what they can get.

Still, China Remains the Biggest Factor in Steel Prices

Well-informed readers may have been taken aback by the steel prices reported earlier in this article. After all, HRC just closed at $855 after a stark decline from March highs. Meanwhile, Rebar has been on the decline since May and only started ascending again as of last week. Of course, the main reason for this has little to do with the war. Instead, it has to do with China.

Hot Rolled Coil

China’s construction industry has been contracting for years now, savaging demand for homemade steel goods and imports alike. To add fuel to the fire, the country currently has a massive surplus of the metal. After all, the country produces around 56% of the world’s crude steel. With Beijing rejecting calls to curb production and minimal demand at home or abroad, suppliers are sitting on a growing mountain of crude.

And here’s where it all ties together – with the war affecting trade so dramatically, normal metrics for evaluating the steel market no longer apply. As we stated several months ago, the steel market seems to have moved away from traditional supply-and-demand-based predictability. Instead, economists are rushing to produce new models that better reflect the 2022 marketplace.

For now, it’s a waiting game being played by some very stubborn participants.

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U.S. steel prices continued their decline this month alongside other steel markets. Hot rolled coil, cold rolled coil, and hot dipped galvanized prices all dropped beneath their early March bottoms. HRC prices, in particular, continue to close in on the $1,000/st mark, while plate prices saw their second consecutive month-over-month decline.The Raw Steels Monthly Metals Index (MMI) fell by 6.91% from June to July with all components of the Index showing declines. 

Know what to do when the market shifts. Related article: The Art of Timing Your Buy

U.S. and European Hot Rolled Coil Returns to Pre-War Levels.

Global hot rolled coil prices declined to pre-war levels in early July as China’s lockdowns and the prospect of a global downturn weighed on prices. U.S. steel prices saw the most sizable bounce from Russia’s invasion of Ukraine after a 5-month downtrend inverted in early March.

From the early March bottom, prices increased nearly 44% until the descent resumed in late April. At the start of July, prices stood nearly level with the March low. However, the decidedly bearish trend continued, unbothered by that threshold. Indeed, hot rolled coil prices dropped 48% from their October all-time high at the end of the first week of July.

Prior to the invasion, European hot rolled coil prices remained within a larger uptrend. Meanwhile, U.S. hot rolled coil prices more than quadrupled from their 2020 low until their peak. However, European prices rose at a more moderate pace and skipped the trend reversal seen by their U.S. counterparts. The invasion, nonetheless, triggered a sharp 12% jump from March to April. Still, the effect of the conflict appeared short-lived, as prices began to slump during April. By June, the pre-war uptrend had reversed, erasing gains as prices prices fell to their lowest level since January.

Chinese Hot Rolled Coil and Steel Prices Dropping Significantly

Meanwhile, Chinese hot rolled coil prices peaked long before their Western counterparts. The uptrend, which began in April 2020, saw a sharp reversal by mid-May of 2021. This was after Beijing issued warnings on price speculation. Although the following year saw multi-month periods of consolidation and uptrending, gains were wiped out before prices could overtake previous highs by more substantial declines. Thus, prices remained within a macro downtrend.

Nonetheless, ahead of the invasion, Chinese hot rolled coil prices saw three months of steady increases. The invasion appeared to trigger a 7.4% jump over the course of a week in early March, but the spike soon corrected. And though prices rebounded, they failed to overtake that early March high before the impact of lockdowns began to take effect, and the downtrend resumed. Prices now sit almost 21% beneath their March peak at their lowest level since November of 2020.

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Chinese Steel Sector In Crisis, Inventories Pile Up

While global prices continue to trend downward, Chinese steel prices sit substantially lower than their Western counterparts. Even before the most recent lockdowns, China’s property sector, a leading consumer of steel, saw property sales, investment, and new construction drop for months. According to the National Bureau of Statistics of China, the first five months showed year-over-year contractions of  31.5%, 4% and 30.6%, respectively.

In fact, May marked the eleventh consecutive month of decline for house and apartment sales. These declines occurred in spite of China’s efforts to bolster the beleaguered sector during the same period. According to Chinese state-owned Sina Finance, China made almost 500 regulatory changes and stimulus measures related to the property sector during the first half of 2022.

While lockdowns and zero-COVID policies did not cause the property sector downturn, they certainly worsened it. For China’s steel sector, the impact of both has translated to a substantial supply glut. Currently, demand remains weak and prices continue to slide. According to a recent Bloomberg report, data from the China Iron & Steel Association showed that while inventories fell slightly from record-highs reached in June, they remain 23% above the previous year. Plummeting demand amid strong output caused numerous steelmakers to become unprofitable and forced numerous mills to curb output.

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Ba.5 Arrives in Shanghai, Threatens Infrastructure Push

Theoretically, China’s “all-out” infrastructure push should benefit the steel sector. However, the recent detection of the highly-transmissible Ba.5 in Shanghai, alongside rising case counts, could put those projects at risk.

During the first five months of the year, outbreaks caused numerous disruptions to construction projects. And while the National Bureau of Statistics reports that China’s infrastructure budget rose by 6.7% during that time, its construction sector remained crippled by lockdowns and restrictions.

Meanwhile, excavator production and sales, which are leading indicators for Chinese construction activity, showed continued declines throughout the previous year. In fact, the China Construction Machinery Association (CCMA) showed a 30.5% year-over-year drop in excavator production during the first five months of 2022. In April alone, domestic excavator sales dropped 61% from 2021.

Hitachi Construction Machinery likewise showed consistent monthly year-over-year drops in Chinese demand for hydraulic excavators. On top of that, the company’s average operating rates fell over 7% year over year during the first five months.

Raw Steels MMI: Actual Prices and Trends

  • Chinese slab prices fell by 10.7% month-over-month to $723 per metric ton as of July 1. Meanwhile, the Chinese billet price decreased by 7.59% to $616 per metric ton.
  • Chinese coking coal prices dropped 9.25% to $467 metric ton.
  • U.S. three-month hot rolled coil futures fell by 9.63% to $882 per short ton. While the spot price dropped 22.72% to $1,034 from $1,338 per short ton. U.S. shredded scrap steel prices fell by 3.64% to $476 per short ton.

The Renewables MMI (Monthly Metals Index) dropped significantly from June to July. All in all, the index fell a staggering 22.05%. How will this impact steel prices today?

Renewable Prices

Problems With China’s Solar Panel Manufacturing Dominance

Some experts say that initiatives aimed at creating a zero-carbon future are being impacted by dependence on Chinese solar panels. Recently, the International Energy Agency announced a less-than-favorable outlook regarding China’s dominance on solar panel manufacturing. According to the IEA, the US’ high demand for solar panels has increased its dependency on China. In fact, the United States’ PV (photovoltaic) solar demand exceeds China’s by more than twice.

Solar Panels

Multiple solar panels

Cost-efficiency plays a considerable role in outsourced solar panel production. However, this could have unseen consequences. The fast-growing demand for solar panels in the US poses an issue in and of itself.

While people’s hearts are in the right place (lowering carbon emissions), an area of production growing and expanding so quickly typically doesn’t leave time for proper regulation. Also, the profitability of global solar energy initiatives is volatile. As the IEA says, solar power has a need and demand, but it must first have all moving parts in place.

Make sure you are following the five best practices for sourcing steel. 

Ireland Revs Up Renewable Wind Energy

Recently, Ireland began utilizing green hydrogen to bump up its renewable energy storage with wind power. CleanTechnic, a US-based clean energy news source, noted that Ireland was behind its fellow European nations in terms of hydrogen energy. Hydrogen, according to some, remains an untapped and heavily un-researched renewable energy source. In fact, the base element has already proved invaluable in other commodities markets such as agriculture and natural gas.

Ireland’s new  “green hydrogen” project relies heavily on offshore wind energy. Currently, Ireland has 45 offshore wind farms in the works. Despite this, there are only two currently running. Unfortunately, numerous roadblocks have caused significant delays in new wind initiatives. Examples include planning delays, building permission problems, and the surrounding shoreline being too deep for fixed wind structures.

Wind Power

Offshore wind turbines

With the new green hydrogen initiative, Ireland could remedy these problems with hydrogen-fueled storage and floating wind structures. That said, this brand-new renewable energy solution remains largely untested, and, therefore, questionable in reliability. Could floating offshore wind turbines prove a reliable source of energy and a remedy to deep offshore restrictions? As WIRED recently noted, the initiative appears so promising that billions of dollars are currently being invested into it globally.

The GOES/Grain Oriented Electrical Steel MMI (Monthly Metals Index)

The GOES index continued its climb from June to July. Altogether, the index rose by 2.4%

Steel Prices Today

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GOES Opportunity for American Appliances: Steel Prices Today

How do GOES prices keep such a bullish pace? There are numerous factors at work, especially on the demand side. In addition, government regulations limiting CO2 emissions has also helped to drive demand for high-power transformers, motors, power transmission and other purposes according to a recent report.  Add all of these sectors up, and it’s no surprise why GOES products are some of the most sought-after in the marketplace.

On top of this, electrical steel, in general saves consumers a fortune in electric costs. This is mainly due to its ability to maintain heat by as much as 30%. And with the cost of everything steadily rising in the US, consumers are more contentious about saving money than ever.

Steel Rolls

Rolls of steel sheet in a factory.

 

Renewables and GOES Trends, Facts, and Figures:

  • Chinese neodymium prices only fell slightly by 0.9%, leaving prices at $176,177.25 per metric ton
  • Chinese steel plate took a heavier hit. Prices dropped 8%. Meanwhile, the current price per metric ton sits at $739.01
  • U.S. steel plate also dropped in price but not as dramatically. Prices fell 3.07%. Current price sits at $1,833 per short ton.

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Metinvest, the Ukrainian steel production and mining group, recently began the process of restarting several of their Italian flats rolling mills. The factories had been offline for scheduled maintenance throughout May. And with global supplies strained, both Metinvest and the market are welcoming the much-needed additional steel production.

Metinvest’s plate and hot rolled coil mill Ferriera Valsider, resumed operations in early July. Meanwhile, their plate roller mill, Trametal, has been back online since June. In an end-of-month update on its operations, Metinvest provided insight into how the factories’ restarting might affect the marketplace. They also outlined plans for future expansion in the face of the ongoing war.

steel production

photollurg/Adobe Stock

Ferriera Valsider and Trametal Capacities for Steel Production

According to the June 30th statement, Ferriera Valsider, located in northeast Italy’s Veneto region, can roll 750,000 metric tons per year of hot rolled coil in 1.8-20mm gauges. The site can also produce up to 1,570mm widths for construction if needed.

Valsider also has 500,000 metric tons per year capacity to produce quarto plate in 12-200mm gauges. On top of that, the site can also facilitate a 3,000mm maximum width. Applications for that product include boiler and pressure vessels, shipbuilding, construction, and feedstock for pipes.

Metinvest’s Trametal plant rests in the Friuli Venezia Giulia region, also located in Northeastern Italy. According to the tech report, that facility can roll 600,000 metric tons of quarto plate in 4-150mm gauges per year.

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Plant Maintenance Cycles Were Moved Up From August

Both the Valsider and Trametal plants shut down for maintenance in May. According to a report by the Interfax-Ukraine news agency on May 18th, maintenance normally takes place in August. However, one analyst told MetalMiner that poor market conditions for flat products in Europe, energy costs, and other woes led Metalinvest to move up their dates.

Steel Production

Indeed, official offers on hot rolled coil in northern Europe were €900 ($940) per metric ton exw in late June. This was down from €1,010-1,050 ($1,050-1,095), according to our trading source. This meant that buyers seeking larger tonnages could easily reach €850 ($885) against the official offers.

The War in Ukraine a Major Factor in Steel Production

Though energy costs have risen sharply against market demand, the need to source slab for rolling from elsewhere besides Ukrainian plant Azovstal is forcing Metinvest’s hand on many decisions. Most will remember that the Mariupol-based Azovstal plant was supplying the Italian rolling assets with slab before Russia invaded Ukraine on Feb. 24.

However, in a major news story, the plant came under heavy fire back in March. Soon after, it was also the site of an 82-day siege by Russian forces and those from the breakaway Donetsk People’s Republic (DNR). As forces attacked the port city, both Azovstal and the adjacent Ilyich Iron & Steel sustained heavy damage.

Steel Production

However, due to the ongoing conflict, the extent of the damage remains unclear, as does any hope of the plants coming back online. “There is no plan to restart while the area is under Russian occupation,” our inside analyst added.

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Metinvest Looking to Expand Further in the Short Term

Recently, Metinvest announced they were considering the construction of a new steelmaking plant in Bulgaria to bolster steel production. According to the Ukrainaian publication Ukrrudprom, the group wants to harness iron ore from its sites in the Dnipropetrovsk region.

“But, again, in order to do this, you need to be sure that we will be able to supply ore from Kriviy Rih to these countries,” said CEO Yuriy Ryzhenkov. “This is possible, but not guaranteed. We are considering different scenarios and technology strategies.”

Meanwhile, Metinvest continues to produce iron ore at its Central GOK at reduced capacity utilization. The group also plans to suspend production at the Ingulets and Northern GOKs from July 1 into the middle of the month. Those sites are in or near Kriviy Rih, in the Ukrainian part of the Dnipropetrovsk region.

Ryzhenkov did not give any indication as to what a prospective plant would cast or roll or what kind of financial commitment it would entail. However, our inside analyst believes slab to be the most likely variant. They also stated that the prospective plant’s site would likely be close to Metinvest’s longs roller Promet Steel, which lies about 25 kilometers from the port city of Burgas.

Planning Steel Production Around the Russian Invasion

Promet Steel also plans to restart operations in mid-July. This, after difficulties in acquiring needed billets from Ukrainian asset Kamet Steel prompted the Bulgarian plant to suspend operations in mid-June

Steel Production

“There have been changes in logistical routes and supply chains in the country, as well as high transportation costs to deliver goods to end customers,” a Metinvest representative stated. “Stocks of iron ore and steel products have accumulated throughout the group’s supply chain, while there have been significant delays in Metinvest’s goods crossing the border with the European Union.”

Kamet Steel, on the other hand, is in Kamianske. This is near Dnipro, a city largely unaffected by Russia’s military invasion of Ukraine. The plant sits on the banks of the river of the same name, which exits into the Black Sea at Kherson, a city now under Russian control.

Metinvest halted one of Kamets Steel’s three blast furnaces in April, leaving only one operating at present. When fully operational, Kamet can pour up to 3.5 million metric tons per year of crude steel. It then casts the product into square and round billet for commercial sale or for rolling into 1.8 million metric tons of long products.

Promet rolls 800,000 metric tons per year of rebar in 8-40mm diameters on Mill 3000, and can also produce merchant bar, including angles, flats, and rounds.

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The Automotive MMI (Monthly Metals Index) experienced another decline from June to July. After a -6.53 drop last month, the 30-day price change jumped to -7.77%. As with the previous months, the automotive industrial metal marketplace has been plagued by problems. Curiously enough, it’s supply – not demand – that can’t make any headway towards normalization. Below, we’ll discuss some of the latest news affecting the global automotive marketplace.

Industrial Metal

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Dude, Where’s Our Cars? U.S. Automotive Industrial Metal Tighter Than Ever

Recently, Cox Automotive revised their sales predictions for the rest of 2022. Though all the figures are not yet in, they set their June sales forecast at 13.8 million. This is up from the previous month’s 12.7 million units but far below what we saw in 2021. As if that weren’t bad enough, the company’s current yearly forecast for new vehicle sales remains lower than we saw in 2020.

How can a “recovering” industry fail to meet mid-pandemic numbers? Cox was quick to cite inventory as the major driver of the buying slowdown, but analysts certainly aren’t ignoring the worsening global economy. According to Cox’s Senior Economist, Charlie Chesbrough, they have demand, particularly for electric vehicles. However, the roadblocks between raw material suppliers, manufacturers, and consumers just keep multiplying.

Industrial Metal

Last month, Cox also sounded the alarm about monthly car payments, which had hit a shocking average of $712. Of course, even buyers seeking used vehicles are getting pinched by price increases. Many experts say that it’s frustrating to see so much demand and no supply. In fact, some think it’s only a matter of time before most buyers simply throw in the towel on their new car prospects.

Will this give the supply side the chance to catch up or just toss another wrench into the industry’s sputtering machine?

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Manufacturers Think the Chip Shortage May Stretch into 2023 (or 2024)

One of the main factors hamstringing global auto supply is the ongoing semiconductor shortage. Unfortunately, hopes of seeing any relief in this area were dashed yet again at the World Economic Forum this Spring. There, Intel CEO Pat Gelsinger stated that supply problems would most likely continue into at least 2023. He subsequently admitted that 2024 would be more likely.

As with most other commodities, the shortage of microchips is a multifaceted problem. During the pandemic, home electronic sales went through the roof. However, factories were also forced to slow production or shut down entirely. As the Law of Supply and Demand reared its familiar head, it wasn’t long before shortages, and price increases became the norm.

Then came the invasion of Ukraine. This drastically affected the supply of neon gas, which is essential to the conductor market. Russia, on the other hand, supplies between 25% and 30% of palladium, another semiconductor necessity. As sanctions on the country began to roll out, the palladium did the opposite.

Russia VS Ukraine

GM Removing Non-Essential Functions

Of course, Gelsinger’s announcement was only surprising to industry outsiders. Auto manufacturers have been scrambling for months, trying to find a way to build cars around the shortage. GM removed heated seats from many of the vehicles, telling customers they’d reinstall the feature as soon as chips became available. Other companies started limiting secondary non-essential functions altogether.

But the news isn’t all gloom and doom. McKinsey & Company recently published an article detailing how the Automotive Industry could circumvent the problem. Though they admit that there are no “short-term” solutions, the company sees the post-pandemic shortage as a chance to shore up supply lines for the future. If chip suppliers and car companies use this as a learning opportunity, it could be the last time we see scarcity on this scale.

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Industrial Metal and Cars: The Future is Electric

Despite all the issues plaguing the Automotive marketplace and industrial metal, it’s hard to ignore the fact that we’re in the middle of a tech revolution. A new CBS poll recently found that 59% of Americans are considering buying an electric vehicle. Moreover, sales of hybrids and EVs doubled last year, setting a new record of 6.6 million units.

Electric Vehicle

An electric car charging in California

Of course, this shift was intended to created interest in new technology or a desire to live “more green.” Instead, it’s largely the result of anger and outrage over skyrocketing gas prices. In that way, it’s less like the move from horses to cars at the beginning of last century. Unless the impetus back then was a major surge in the cost of oats.

But it’s important to keep things in perspective. These types of shifts are normally good economic news, presenting opportunities for companies of all kinds to produce new, exciting products and services to support them. For instance, Sony and Honda announced a joint BEV venture. French car giant Renault wants to re-imagine their Alpine sports car with fully electric capabilities.

What’s the Verdict?

The takeaway: more and more people want off gasoline. And whether they go into the future happily or begrudgingly, they are going nonetheless. This means a lot for metals commodities, especially battery-related minerals like lithium, cobalt, and nickel. It means a lot for battery companies, who are pressured by the market to produce newer, better, and more effective products.

Lastly, it means a lot for the balance of the global economy and industrial metal. In the very near future, having oil reserves might not be the economic and international relations “blank check” it used to be. Will it be great? Will it be a disaster? It’s impossible to tell. But one thing’s for sure: it will be different. For those who aren’t enjoying 2022 very much, “different” might be good enough.

Automotive MMI: Actual Metal Prices & Trends

  • Korean aluminum experienced no price change this month per kilogram, compared to June’s slight price drop.
  • Chinese lead prices dropped further this month, falling around 1.86% per metric ton.
  • US shredded scrap steel took another hit this month as well. Priced dropped an additional 3.64% per short ton.
  • Palladium bars, like many precious metals, followed a downward trend in July. Prices fell 4.51% per ounce.
  • Platinum bars followed suit with palladium taking a price hit. The price per ounce fell 7.46% per ounce.
  • LME copper dropped a staggering 13.49% per metric ton.
  • US HDG steel took a most drastic hit, plummeting 14.55% per short ton.

Mexico’s steel metal market recently saw a slowdown on metal prices, leading experts to believe that Mexico’s industrial metal market may soon turn bearish. Flat steel prices, along with long steel prices, have been dropping over the past several weeks. In fact, Mexico’s steel prices have been in steady decline since April. However, in mid-May, prices dropped sharply and remain bearish. This is a dramatic change from March of 2022, when Mexico’s steel metal market was following an unquestionably-bullish path.

Industrial Metal

Supply chains continue to challenge global trade across all commodities.

Experts note that the Mexican metals industry has not seen such erratic fluctuations since the end of 2020. Recently, Banxico, one of Mexico’s benchmark banks, increased national interest rates. Like the US, this was an attempt to stifle dramatic inflation rates. Indeed, steep inflation has plagued the US and Mexican metal markets all year. With a looming recession in the US, increasing steel exports from Mexico may not be possible.

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Fear of a US Recession Grows While Industrial Metal Prices Fall

While supply chain issues remain a problem around the globe, metal prices in the US are being impacted by a looming recession. In fact, The Bloomberg Commodity Index fell about 10% in the past week alone. And though many experts speculate that the US could avoid a recession, investors and buyers remain skeptical. Tin and copper have hit their lowest point in years, and aluminum prices are quickly following suit.

With commodities, in particular, experts have reason to believe that these downturns will continue, putting the immediate future of metal distributors and metal producers in question. Of course, the war in Ukraine has also impacted commodity prices, supply, and distribution. In recent months, the demand for coal has gone back up, and prices have increased, especially in Europe.

All in all, one thing remains certain: big changes are coming to the global commodities market.

Commodities

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China Cutting Down Industrial Metal Manufacturing

With metals hitting bearish numbers not seen since the Great Recession of 2008, manufacturing and exports from countries like China are being cut back. To add injury to insult, sanctions on Russia for the invasion of Ukraine continue to impact global metal supply. As one might expect, construction and industrial equipment are the two markets most heavily impacted by the change.

Indeed, some experts speculate that this could severely stagger money spent on automobiles and the use of metal in heavy construction. After all, a looming recession means less spending, both by businesses and consumers. If it does happen, markets will need to adjust rapidly.

Europe and India’s Metal Markets Slide Along with the US’

Several major global metal exchanges are sliding alongside the US’. In Europe, for instance, metal distributors are stuck with massive amounts of inventory they can’t unload. Upon reaching a high point in the European metals market in March, European distributors purchased at an alarming rate. It was a logical move at the time, as many feared prices would continue to climb. Now with a possible global recession on the horizon, supply chains are sitting on inventory they can’t turn around.

India Metal

In India, where metal stocks have slid by as much as 30%, industrial metal commodities are not fairing much better. India’s central bank system has taken actions similar to Mexico and the US, trying to stifle inflation along with unprecedented commodity prices. Clearly, even the world’s largest democracy is wary of the impacts of sliding metal prices.

Even so, the question remains: will the recession hit in 2022? Moreover, perhaps bracing for a global recession doing just as much damage?

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In desperate times, politicians turn to increasingly desperate policies to prop up support. This remains the case for British steel. Recently, the UK’s Boris Johnson has been dodging accusations that he repeatedly lied to parliament. This, combined with his seeming inability to admit his failings, has pushed political turmoil in the country to a fever pitch.

It’s worth noting that the allegations against Johnson stem from relatively petty infringements of his own draconian rules during the pandemic. Even so, his popularity among the UK populace is nearing rock bottom. So far, the part has lost two key by-elections in what are dubbed “Red Wall” seats. These are traditionally Labour Party areas that swung Tory in the last election. At the time, the desire for Brexit overcame historic socialist leanings.

Recent accusations state that Johnson used steel trade sanctions to shore up support for the seats, but failed in his efforts.

British Steel

Tariff Troubles Loom on the Horizon

On the plus side, the government is proposing a two-year extension on existing “safeguard” measures. These are tariffs on imports over a certain quota threshold instigated across the EU back in 2018 and later extended by the European Union.

But as Trump discovered back in 2018, imposing a 25% tariff on imported steel to bring back steelmaking and manufacturing jobs is no easy task. In the case of the US, it quickly became a bureaucratic nightmare. Instead of bringing jobs back to the Midwest rust belt, the government wasted countless government hours  trying to manage the exemptions and challenges from special cases.

In fact, despite those exemptions gradually being granted, specialty steels and other commodity products still get caught for months at a time. This deprives manufacturers of access to competitively priced steel for which no domestic equivalent supplier exists.

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British Steel and Possible Legal Infringement

As with the US, the UK’s move will surely run into trouble with the WTO. Indeed, lawyers on all sides have lined up to challenge the extensions as soon as they’re approved. Of course,  the UK is already on the brink of retaliatory action from the EU over changes to the Northern Ireland protocol. A trade war on steel tariffs is the last thing an economy heading into recession needs.

To make matters worse, protections rarely benefit the wider economy. It also sends a worrying signal to the world about Britain’s vaunted post-Brexit model as a global trading country. The country embraces the same protectionist measures as the rest of Europe. In fact, they’ve proved critical for years.

Steel Rolls

Industrial steel plant for the production of sheet metal.

UK Steel in Need of Anti-Dumping Policies

Anti-dumping duties are appropriate in many cases for British Steel. For supplying countries like China, the case remains crystal clear. However, indiscriminately applying such measures across a swath of developing countries poses a terrible threat. Sure, they produce steel at a lower price than the UK. However, these policies put a far greater number of steel consumers at a  global disadvantage in the interest of the few.

Should the government look closer to home? For example, they could re-appraise its headlong rush into ever-harsher environmental legislation. Perhaps closing energy supply options in the interest of dubious environmental goals have caused more problems for the steel industry than imports? After all, those goals are above and beyond those implemented by other countries.

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New Steel Billet Caster in the Works

Longs producer British Steel has begun constructing a billet casting machine at its Scunthorpe works. It will be the second such machine built at the site, which lies in England’s East Midlands region.

On June 15th, the company said that the continuous caster should come on stream in late 2022. Once in operation, it will produce square billet in 140x140mm, 155x155mm, and 180x180mm sizes.

“The new caster will produce billets of an even higher standard, with much better internal and surface qualities,” said Richard Longbottom, Technical Manager of Steelmaking Development. “We’ll also have a broader product range. This enables us to become more competitive and expand our offering to customers.”

British Steel

Steel Billet Casting, 2022, Adobe Stock

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Spokespeople for the company added that Italian firm Danieli will supply the new equipment. However, they declined to say what the new casting machine’s capacity would be or how many strands it would have.

The existing eight-strand billet caster can cast an estimated 900,000 metric tons per year of semi-finished product. That includes 150x150mm and 180x180mm sizes made out of the crude steel produced on site.

The plant could originally produce about 4.5 million metric tons of crude steel per year via four on-site blast furnaces and three 300-metric ton converters. The spokesman noted, however, that the plant is no longer pouring those volumes. Billets act as a feedstock for rolling rebar, merchant bar sections as well as wire rod.

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British Steel Remains a Major Player in the Metals Market

The new caster is part of an £80 million ($98 million) upgrade project for Scunthorpe, in England’s East Midlands. Whilst the majority of that total is intended to finance the new billet caster at £48 million ($59 million), the remainder is to upgrade and reconfigure Scunthorpe’s wire rod mill.

“The product range will also offer customers considerably improved mechanical properties and enhanced options for supply condition,” the company stated. “[Examples include] normalized rolled and low-temperature rolled wire rod.”

The company also indicated that British Steel could produce up to 3 million metric tons per year of rolled long products. Besides wire rod in 5.5-17mm diameters, Scunthorpe rolls construction steels (sections) and rail. Meanwhile, the Teesside mill rolls construction steels and the Skinningrove works, which sites about 100 kilometers north of Scunthorpe, rolls special profiles.

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Other Scunthorpe Steel Capabilities

Scunthorpe can also cast blooms from a six-strand continuous caster as well as slab in 225mm- and 298mm-gauges from a two-strand casting machine. Each caster has a listed capacity of 1.2 million metric tons per year.

Billets from the new caster will also go to the British Steel’s FN Steel plant, in the Netherlands. Reports indicate that the facility can roll at least 350,000 metric tons per year of wire rod in 5.5-30mm diameters.

Applications for British Steel’s rolled wire rod include tire reinforcement, automotive spring and steels, as well as rail clips. Chinese steelmaking and chemicals conglomerate Jingye Group acquired British Steel in 2020. Greybull Capital originally formed British Steel in 2016 when it acquired the Long Products business from Tata Steel.

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