Steel

Talk of trade meetings are usually met with a yawn and click to the next news item. However, last week’s meeting between the E.U. and the U.S. in Pittsburgh may be one event worth following.

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E.U., U.S. and the fate of Section 232

tariffs text on top of US currency

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The inaugural Trade and Technology Council (TTC) meeting was attended by both Secretary of Commerce Gina Raimondo and U.S. Trade Representative Katherine Tai, while the EU delegation included trade chief Valdis Dombrovskis.

So, in theory at least, that is enough political heft to have meaningful negotiations.

And what is there to negotiate, you may ask? In short, those Trump-era U.S. tariffs on European steel and aluminium.

Back in 2018, former President Donald Trump imposed hefty duties on imports of steel 25% and aluminium 10% from Europe and other countries based on national security grounds (using Section 232 of the Trade Expansion Act of 1962). While a solution has been reached with Canada and Mexico, there isn’t one with Europe, a recent Financial Times report states.

Back in May this year, the two sides reached a detente. Europe agreed to delay the ratcheting up of its retaliatory tariffs on clothing, bourbon, and motorcycles until Dec. 1.

But the clock is ticking.

E.U. trade chief Dombrovskis is says the E.U. needs to decide what it’s going to do about that deadline by early November.

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Before we head into the weekend, let’s take a look back at the week that was and the metals storylines here on MetalMiner, including aluminum prices, rising power costs and much more:

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Week of Oct. 11-15 (aluminum prices, power costs and more)

aluminum price

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Steel prices in India have nearly doubled over the last year, reflective of rising steel prices across the globe.

But for India, several factors such as a steep rise in the prices of raw material like iron ore — and of late, coking coal — have contributed to the steep hike.

Due to China’s decision to cut steel production and exports, India is also experiencing a price increase. High domestic demand had led China to remove rebates and impose export taxes on certain steel products this year to discourage exports. Steel production is also set to be capped in order to reduce carbon dioxide emissions.

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Indian steel prices on the rise

India

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India’s steel industry has been impacted by the price hike in various ways.

For some major steel manufacturers, it has led to large profits. For many small and medium enterprises that manufacture steel and engineered products, it has led to losses.

Protests have been lodged with the Indian government due to the shortage of raw materials. After China, India is the world’s second-largest steel-producing country. The price escalation in India started in the second half of 2020-21 and has continued nearly unabated since then.

In June, for example, the wholesale price of hot rolled coils (HRC) shot up by approximately US $40 (Rs 3,000) to be approximately $1,533 (Rs 69,000) per ton. Cold rolled coils shot up by about $66 (Rs 5,000) to sell at approximately $1,146 (Rs 86,000) per ton. Prices of both HRC and CRC were nearly half in the same period in 2020. These forms of steel are used in the automobile, construction and transport sectors.

Domino effect

Because it is steel, the price hike has had a cascading effect on consumer goods, construction and other activities, too.

Steel plants in the country have hiked steel prices by around $80 (Rs 6,000) per ton in just the last eight days.

CNBC TV18 reported JP Morgan India was of the view that Indian steel prices were still about 15% discounted to imported steel prices. When the busy season post festivals, starts in India, post-festive season, demand could go up, leading to some increase in local steel prices.

The sudden rise in steel demand once the COVID lockdown had ended caught Indian steel companies off guard. The uptick in steel consumption along with a renewed focus on infrastructure and government initiatives (such as “Make in India”) have led to an increase in steel demand.

In 2017, as part of the national steel policy, the Indian government announced India would try to reach 300 million tons per year year of crude steel production capacity by 2030.

Coal crisis

Furthermore, a local coal crisis, which some experts predict could last for quarters, has hit the steel sector.

Like China, India is also staring at a power crisis due to coal shortage. Over 70% of India’s power still comes from coal-powered plants.

As of Oct. 6, 80% of India’s 135 coal-powered plants had less than eight days’ worth of supplies left, according to BloombergQuint.

There are several reasons for the coal shortage. Among them, India has reduced its investment in the fossil fuel as it gives priority to renewable energy to meet its climate change targets.

BloombergQuint cited JSW Steel Ltd. officials, who have gone on record to state that the coal shortage is likely to lead to steel price hikes for the next few quarters.

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

The Raw Steels Monthly Metals Index (MMI) dropped by 2.4%, as most forms of steel around the world declined, despite coking coal prices being at all-time highs.

October 2021 Raw Steels MMI chart

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Global steel production

According to the World Steel Association, global steel production declined for the fourth consecutive month in August.

The 64 reporting countries to World Steel produced a total of 156.8 million tons (5.06 million tons per day) for August, compared to 171.3 million tons (5.71 million tons per day) in April, which was the highest monthly production of the year on a tons-per-day basis.

China continues as the world’s top producer by eight times more than the second-largest producer, India. Chinese production during August reached 83.2 million tons (2.68 million tons per day), over 50% of global production.

China, however, posted a fourth consecutive month of production declines on a tons-per-day basis. Since April, China’s daily steel production fell by 17.8%.

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This morning in metals news: miner Anglo American announced the results of a feasibility exploring the potential for hydrogen in the South African economy; General Motors last week announced plans to double its revenue; and, lastly, steel prices have showed signs of flatlining of late.

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Anglo American explores role of hydrogen in South Africa

green hydrogen

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In collaboration with several parties, miner Anglo American recently conducted a feasibility study “to explore the potential for a hydrogen valley anchored in the platinum group metals-rich Bushveld geological area, along the industrial and commercial corridor to Johannesburg and to the south coast at Durban.”

“The opportunity to create new engines of economic activity through hydrogen has been validated through this feasibility study with our partners,” said Natascha Viljoen, CEO of Anglo American’s PGMs business. “As a leading producer of platinum group metals (PGMs), we have for some years been working towards establishing the right ecosystem to successfully develop, scale-up and deploy hydrogen-fuelled solutions.”

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The Automotive Monthly Metals Index (MMI) held flat for this month’s reading, as U.S. auto sales slumped in Q3.

October 2021 Automotive MMI chart

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US auto sales slip in Q3

General Motors reported its third-quarter sales fell from 665,192 vehicles in Q3 2020 to 446,997 vehicles in Q3 2021, a 32.8% drop.

The automaker cited semiconductor supply chain disruptions and “historically low inventories.”

“During the quarter, GM provided an update for investors that its wholesale volumes in North America in the second half of 2021 would be down about 200,000 units from the first half, largely because of supply chain disruptions in Malaysia caused by COVID-19, with most of the impact occurring during the third quarter,” the automaker said. “GM’s financial outlook is still expected to be within the calendar year guidance range previously provided as the company continues to develop solutions to mitigate the impacts of the semiconductor shortage and Chevrolet Bolt EV recall.”

Meanwhile, Ford reported total sales in the U.S. fell 17.7% in September. Unlike its truck and car segments, Ford SUV sales jumped by 3.4%.

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The Construction Monthly Metals Index (MMI) fell for this month’s value, as U.S. construction spending came in virtually unchanged from the previous month.

October 2021 Construction 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 construction spending

housing starts

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U.S. construction spending in August reached a seasonally adjusted annual rate of $1,584.1 billion, up minimally from the revised July estimate of $1,584.0 billion, the Census Bureau reported.

Meanwhile, the August rate increased by 8.9% from August 2020.

During the first eight months of 2021, construction spending totaled $1,034.5 billion. The year-to-date total marked a 7.0% year-over-year increase.

Private construction spending reached a seasonally adjusted annual rate of $1,242.2 billion, or down 0.1% from July. Residential construction rose 0.4% to $786.6 billion. Nonresidential construction fell 1.0% to $455.6 billion in August.

Public construction spending reached a rate of $341.9 billion, up 0.5%. Educational construction rose 1.1% to $79.8 billion. Highway construction rose 1.6% to $98.3 billion.

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Global crude steel production fell by 1.4% year over year in August, the World Steel Association reported.

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

Global crude steel production falls, including in China

Chinese steel factory

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Global crude steel production fell by 1.4% to 156.8 million metric tons in August, the World Steel Association reported earlier this month.

The total marked a 2.7% decline from 161.1 million metric tons in July.

Meanwhile, top steel producer China saw a decline in output for the third consecutive month. China produced 83.2 million metric tons in August, down 5.3% from 86.8 million metric tons.

Furthermore, China’s output fell from 95.9 million metric tons in August 2020. Beijing has implemented steel productions curbs, which have helped send iron ore prices downward. In addition, China has pushed forward with consolidation of its massive steel sector.

For the year through August, however, China’s production totaled 733.0 million metric tons, up 5.3% year over year.

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Russia’s 15% export duty on steel has not impacted market prices for flat-rolled products, either coming into the European Union or rolled within the 27-member bloc, market participants told MetalMiner.

“The Russian [steelmakers] are absorbing it completely,” one trading source said of the export duty.

A second trader noted a similar situation.

“The export tax has nothing to do with the customer here. That is the producers’ issue,” that source noted.

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

Russia export duty after two months

Russia exports

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Their comments followed Russian Federal Government’s Decree No. 988 of June 25. The decree imposed a 15% export duty from Aug. 1 to Dec. 31 on all steel exports – finished and semi-finished – from the country and also the wider Eurasian Economic Union. That includes not only Russia, but also Armenia, Belarus, Kazakhstan and Kyrgyzstan. It also includes observer states Moldova, Cuba and Central Asian state Uzbekistan.

The duty also applies to certain base metals, including copper, nickel and low-grade aluminum products.

Federal government officials claimed then that sharply rising steel prices in Europe, Russia’s second-largest export market, were translating to higher steel prices at home.

The European Union is also Russia’s second-largest destination market for steel exports, including finished, semi-finished and tubular products. Those exports exceeded 4.02 million metric tons in 2019, the analyst said.

That number was down 20% on the year from 5.17 million metric tons, yet the bloc retained its place as Russia’s second-largest export market.

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Just over a year ago, MetalMiner commented on the acquisition of most of ArcelorMittal USA’s assets by Cleveland-Cliffs (including potential impacts on steel prices).

Source: MetalMiner

At the time, the MetalMiner analyst team suggested, “The deal strengthens the company’s position in the automotive sector. The company likely controls 60%-65% of exposed auto sheet supply (think steel used on the outside of a car).” The analyst team continued, stating, “Biggest loser? Automotive OEMs like General Motors, Ford, Honda and Toyota.”

Fewer suppliers always results in less competition. Always.

Also as predicted by MetalMiner and confirmed by several people familiar with the matter, Cleveland-Cliffs has implemented firmwide standard pricing across all of its assets. As such, any “lower” pricing available previously in the market — through AK Steel, for example — now sells at the ArcelorMittal price (seemingly higher price level). MetalMiner identified that as an obstacle to automakers at the time. The reduction of three behemoth integrated mills to two drastically lowers competition.

At the same time, all of the steel mills have taken a very disciplined approach to adding (or rather, not adding) capacity to the market. The headline capacity utilization rate remains well above 80%. However, the numbers relate to the actual lines in operation, not total U.S. steelmaking capacity.

According to Bloomberg, U.S. steel consumption is estimated to reach 104 million tons this year and 108 million tons in 2022. However, domestic production was forecast to reach 87 million tons, a shortfall of 17 million tons.

Interested in additional perspectives on steel buying strategies outlined in this article? Join Lisa and Don on Thursday September 30 at 11:30 

Steel producers enjoying record profits amid strong steel prices

Meanwhile, Nucor expects record earnings in the third quarter of 2021. The chart below shows pre-pandemic quarterly market conditions using Q1 2019 compared with Q1 2021.

In short, two of the largest producers by capacity have both seen record earnings.

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