Steel

HRC and HDG prices seem to have recovered a bit since the start of the month. CRC price increases appear less sharp, but may follow suit.

U.S. HRC and CRC prices. Source: MetalMiner data from MetalMiner IndX(™)

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Some steel forms have increased such as CRC and HDG for three consecutive weeks. If the price increases continue at this pace, prices could breach previous levels, which may signal strength and the start of a rally.

Chinese Steel Prices

Chinese steel prices drive U.S. domestic prices. Both usually tend to follow a similar pattern, which means that when Chinese steel prices increase, we would expect a similar movement in U.S. prices.

Despite the Chinese steel price’s cooldown during the last quarter of the year, a new sharp uptrend appears to have started this month.

China HRC and CRC prices. Source: MetalMiner data from MetalMiner IndX(™)

Increasing Chinese prices add strength to the bullish case for steel. Buying organizations may want to follow Chinese prices closely, as they seem to have recovered.

Let’s Remember the Bullish Case

MetalMiner has watched steel prices closely since commodities and industrial metals turned bullish in August 2017.

Although base metals and steel do not necessarily trade in the same direction at the same time, industrial metals do tend to move together. December began with a stronger U.S. dollar caused by expectations of the Congress passing a tax bill. A stronger U.S. dollar caused commodities to fall slightly. However, this commodity downtrend appears short term, as the bullish case remains supported.

What This Means for Industrial Buyers

Buying organizations may want to closely follow both domestic steel prices and Chinese steel prices. Now that the bullish case appears more probable, steel-buying organizations may want to readjust their purchasing strategies.

MetalMiner sends automatic notifications when buying signals trigger a change in purchasing behavior.

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Take a free trial now to our Monthly Buying Outlook for a short-term analysis.

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This morning in metals news, Chinese steel got a boost on the heels of another round of output cuts, Goldman Sachs executives warns about the potential of a U.S. departure from the North American Free Trade Agreement (NAFTA) and Thyssenkrupp looks to get union backing for its European merger deal with Tata Steel.

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Chinese Steel on the Rise

On the heels of output cuts, Chinese steel got a boost Monday, according to a Reuters report.

According to the report, the most-active rebar on the Shanghai Futures Exchange (SHFE) jumped 1.6%, ultimately closing at 3,912 yuan ($591.26) a ton.

Goldman Warns About NAFTA Exit

Goldman Sachs warned clients that it wasn’t optimistic regarding a positive resolution to the renegotiation talks.
“While we expect the rising odds of tax reform to put less pressure on the trade agenda, we do not expect passage of tax reform will raise the odds of a successful Nafta renegotiation,” Goldman Sachs said in a note to clients, according to Bloomberg. “And so a withdrawal announcement looks more likely than not, even if tax reform is enacted soon.”

Thyssenkrupp Looks to Win Union Favor

As German firm Thyssenkrupp works to execute a merger deal of its European operations with Tata Steel’s, the company is looking to win over its workers’ favor.

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According to Reuters, Thyssenkrupp is offering workers commitments on jobs and investments to get union backing for the deal (which was agreed to in September by the two companies in September).

China is the world’s top producer of steel, but it hasn’t been that good or profitable for years.

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Despite, or more likely because of the supply side squeeze enforced by Beijing, possibly up to 100,000 tons of “illegal” (not approved) production capacity has been closed down. Much of this was Electric Arc Furnaces (EAF) based on scrap raw material and deemed too polluting to be tolerated by Beijing.

In practice, EAF technology is anything but polluting and should be preferable environmentally to the blast furnace route. However, much of China’s capacity was small-scale private plants lacking environmental controls and permits.

According to Reuters, quoting CRU data, China’s steel capacity has fallen by 240 million tons over the past three years to about 1,020 million tons this year. Ironically, production has never been higher. It rose 6% from January to October, according to Reuters, and 2017 is set to be an official record high.

The key word here is “official” because historically none of this “illegal” capacity appeared in the official figures, so approved mills are running at near record capacity, estimated to be 85%, making up for the removal of their domestic competitors. Many of these EAF furnaces were making rebar, so not surprisingly rebar is in short supply and prices are on a tear.

Iron ore, particularly higher grade 65% minimum Fe content iron ore is also doing rather well. Despite port stocks running at over a month’s supply prices have reached over $72/ton as mills re-stock with the most efficient-to-produce and least polluting highest grade ore, according to Bloomberg.

All this rationalisation of supply and robust domestic demand has taken its toll on exports. As we reported earlier this week, China’s steel exports have slumped by a third this year. And as the domestic market gradually moves from a buyer’s market to an allocation-driven seller’s market, prices are rising. Read more

Just as legislators in the U.S. and Europe are taking increasingly strident action to curb imports from countries like China under anti-dumping legislation, the tools available to them are being withdrawn.

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Historically, China and a number of other emerging markets have been classified as non-market economies. This means that the state plays a major role in allocating resources and setting prices, making the cost of products less relevant to the economies of manufacture. Under U.S. law, a non-market economy is defined as one that does not operate on market-based principles, and therefore, its prices for final goods do not (necessarily) reflect fair value.

We talk of China in this context because the country is the world’s largest non-market economy, but it is far from alone: there are many other emerging and previously emerging markets that are classified accordingly.

There lies the problem. China is being reclassified, at least in Europe, under a deal negotiated in October. The Telegraph reports that the full European Parliament then offered its endorsement last month, just leaving national governments to give their final approval on December 4.

China has been pushing hard for its economy to be re-classified. Some suggest that the EU agreement was in part motivated by a desire to improve trade with China. After the U.S., the EU is China’s second largest trade partner.

However, many European manufacturers are probably thinking, “Be careful what you wish for.”

As the article points out, these changes mean it will be harder for European companies to argue they are competing against subsidised competitors, with the new system being more flexible in determining whether domestic producers are being undercut. Anti-dumping measures are in place for some grades and forms of steel and for aluminium foil at present, both of which would be harder to renew if the change in status is accepted. Read more

Besides bringing back some cheer to the sector, the latest report by industry monitoring body World Steel Association (WSA) on crude steel production reveals an interesting story.

World crude steel production soared in October, thanks to higher output in China, the U.S., India and Japan.

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While production in the U.S. zoomed by 12% year-over-year in October, China manufactured 72.4 million tons (MT) in the same month, a 6.1% year-over-year increase and 10 times more than the U.S. did that month.

India, on the other hand, produced 8.6 MT of crude steel in October, up by 5.3% to 8.6 MT.

Clearly, the October cheer is positive news, in the sense that the steel sector is making a comeback. The WSA tracks steelmakers in 66 countries globally, representing about 85% of total steel production, and has said in this report that world steel production increased 5.9% year-over-year to 145.3 MT in October.

The China steel story, incidentally, produced nearly half of the world’s steel in October, which indicates a revival of sorts in the growth story there, too.

According to Moneycontrol.com, the downside was reported from Japan, the world’s second largest crude steel producing country. It registered a 1% contraction in output at 8.971 MT in October 2017, compared to 9.060 MT during the same month last year.

During the first 10 months of 2017, Japan’s steel output dropped from 87.442 MT to 87.239 MT, a 0.2% dip compared to the same period last year.

There’s a keen tussle on between the four steel giants (the U.S., China, Japan and India), with the latter already the world leader in stainless steel production and the third largest crude steel producer.

For example, India had overtaken Japan to become the second-largest steel producer in the world after China in 2016, according to the International Stainless Steel Forum. The country’s stainless steel production had gone up to 3.32 MT for 2016, approximately 9% more than the 3.0 MT achieved in 2015. Read more

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This morning in metals news, U.S. imports of steel are up 19% in the year to date, Shanghai nickel drops and miner BHP Billiton looks to cut costs.

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Imports Up Nearly One-Fifth in YTD

U.S. imports of steel are up 19% this year through October, according to data released by the American Iron and Steel Institute (based on preliminary U.S. Census Bureau data).

The U.S. imported a total of 3,119,000 net tons (NT) of steel in October 2017, including 2,493,000 net tons (NT) of finished steel (unchanged and down 0.4%, respectively, compared with September final data).

Year-to-date (YTD) through 10 months of 2017, total and finished steel imports are 32,850,000 and 25,449,000 NT, up 19.4% and 15.4% respectively, vs. the same period in 2016. 

Shanghai Nickel Falls

Shanghai nickel futures dropped more than 2% on Tuesday, Reuters reported.

The drop comes as a result of potentially slackening steel demand in the face of Chinese governmental reforms, according to the report.

Mining Giant Eyes Cost Cuts

Australian miner BHP Billiton is looking to cut costs across its Australian businesses, Reuters reported.

BHP is looking for $1.6 billion in productivity gains at its Australia iron ore, copper and coal units over the next two years, Minerals Australia President Mike Henry said during a briefing in Adelaide, according to the report.

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Despite steel producers’ best endeavors, aluminum continues to make inroads into the industry’s previously unassailable position as construction material of choice for the automotive industry.

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Stronger and, hence, thinner grades of steel allow automotive body formers to find new applications for steel where aluminum seemed like the obvious choice. However, at best this is slowing the uptake of the light metal, not turning the situation around.

Novelis’ announcement that it is bringing its automotive alloy Advanz 6HF – e/s200 to North America after successful development and uptake in Europe only re-enforces the impression that both steel and aluminum producers are innovating and investing like mad — but aluminum is gradually winning market share.

And it is not hard to see why. Aluminum has lower mechanical properties than steel when compared on samples of the same thickness, but has the far lower weight, 2.7g/cm3, compared to 7.85g/cm3. This means thicker sections or parts can be formed while still achieving substantial weight gains.

Novelis Advanz 6HF – e/s200 is one of a range of alloys the firm has developed broadly based on the 6000 series with careful control of alloying elements and production giving enhanced properties. But in some applications producers have developed 7000 series alloys as used by the aerospace industry in aircraft wings and bodies to achieve even higher properties.

7000 series alloys are harder to form and more expensive but have even higher mechanical properties — circa 600MPa compared to circa 300Mpa for 6000 series — and allow automakers to achieve better weight gains. In an Aleris presentation, the company illustrated how the use of 3.5 millimeter thick 7000 series alloy in the manufacture of B pillars achieved the same safety crash performance as 2 mm boron UHS steel, but resulted in a 40% weight saving.

As if to reinforce Novelis’ announcement, competitor Aleris has just opened its new $400 million auto body sheet production centre in Lewisport, Kentucky, and started delivering product to customers. Like Novelis, the firm uses primarily scrap as its feedstock, boosting its green credentials. Aleris produces a range of proprietary alloy grades with enhanced properties over common 6061 grades specifically tailored for a variety of automotive applications. The 6000 series is the industry’s grade family of choice, as they sit comfortably between cheaper and less strong 5000 series and stronger but more expensive (and often harder to form) 7000 series.

In Europe, manufacturers like Audi are going Body in White — meaning the whole structural body shell, plus closing panels like hood, trunk and doors, as wholly or largely in aluminum.

Not surprisingly, this is more at the premium end of the market, where the pressure to improve fuel economy from larger engines is greatest and where higher margins can more readily absorb the cost of using aluminum.

But you do not need deep research to show the direction — Repair and Drive in a recent article quoted a Ducker Worldwide study that predicted that aluminum doors will have gone from virtually zero use as a material in 2014 to 25% of the North American fleet in 2020.

Underlining how rapid the uptake is underway, the consulting firm also estimated 71% of hoods would be aluminum by 2020, up from 50% in 2015, and bumper beams would grow from 33% aluminum in 2015 to 54% in 2020, the article explained.

The current administration’s adverse reaction to broader climate change policies is not the issue here. Automotive is a global business and U.S. manufacturers need to be at the forefront of design and material use to maintain their global positions. The legislation for ever higher fuel efficiency is going to remain a relentless one-way dynamic, encouraging automotive construction to use ever lighter materials and aluminum producers to continue to innovate with alloys and production processes to meet the industry’s demand.

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For now, the focus is on improved 6000 series; in time, more components will justify the use of 7000 series alloys. Either way, the industry has shown it is willing to spend big bucks to stay in what is proving to be a very lucrative race.

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

This morning in metals news, the U.S. Department of Commerce announced an affirmative ruling in its anti-dumping investigation of carbon and alloy steel wire rod from Belarus, Russia and the United Arab Emirates (UAE), Nucor announces it will build a new steel mill in Missouri and the zinc price moves up on supply tightening concerns.

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DOC Issues Affirmative Ruling on Wire Rod

The U.S. Department of Commerce announced an affirmative determination in its anti-dumping duty investigation of carbon and alloy steel wire rod imports from Belarus, Russia and the UAE.

“The United States is dedicated to free, fair, and reciprocal trade with these countries, and this case was decided strictly on a full and fair assessment of the facts,” Secretary of Commerce Wilbur Ross said in a prepared statement. “The Department of Commerce is committed to protecting U.S. companies being hurt by foreign manufacturers that refuse to play fair.”

Commerce will instruct U.S. Customs and Border Protection (CBP) to collect cash deposits from importers of wire rod at the following rates: Belarus (280.02%), Russia (436.80–756.93%) and the UAE (84.10%).

Nucor Announces New Sedalia, Missouri Facility

Nucor announced Tuesday that it plans to build a rebar micro mill in Sedalia, Missouri, scheduled to open in 2019.

The new mill represents approximately $250 million in investments, according to a Nucor release on the announcement.

“This rebar micro mill project is consistent with our long-term strategy for profitable growth and builds on our position as a low-cost producer,” said John Ferriola, chairman, CEO and president of Nucor, in the release. “Strategically positioning this micro mill in the Kansas City area will give us a sustained cost advantage over other domestic steel producers supplying rebar from outside the region.”

Zinc Prices Rise

Zinc reached its highest price in more than a week on Wednesday, Reuters reported.

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The price increase came as a result of worries about supply shortages, as well as solid performance in Chinese steel futures, according to the report.

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This morning in metals news, raw steel production in the U.S. jumped last week, Century Aluminum was down 10.8% on Monday and nickel prices are aided by steel on Tuesday.

U.S. Raw Steel Production Up 9.7%

Raw steel production was up 9.7% year-over-year for the week ending Nov. 18, according to weekly data from the American Iron and Steel Institute (AISI).

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Domestic raw steel production was 1,745,000 net tons while the capability utilization rate was 74.9%. Production for the week ending Nov. 18 was up 0.3% from the previous week, when production was 1,739,000 net tons and the rate of capability utilization was 74.6%.

Century Aluminum Has a Down Monday

Shares of Century Aluminum closed 10.8% lower on Monday, according to an AP report on Madison.com.

The question is, why?

“Market pundits aren’t entirely certain what to make of this development, noting that aluminum stocks may simply have been shifting away from expensive LME warehouses to cheaper warehouses and other countries,” the report states.

Nickel Prices Get a Boost

Steel-dependent nickel got a boost Tuesday, when prices in the Shanghai and London markets saw a jump, Reuters reported.

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The most-traded nickel contract on the Shanghai Futures Exchange was up 1.3% at 94,710 yuan ($14,285) a ton by 0126 GMT, according to Reuters. Meanwhile, three-month LME nickel rose to $11,677 per ton.

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This morning in metals news, U.S. Steel issued a press release in response to Chicago Mayor Rahm Emanuel’s comments regarding the company’s dumping of toxic materials into Lake Michigan, Japanese steel output was down in October and Glencore‘s head of copper stepped down after an internal review.

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U.S. Steel Responds to Mayor Emanuel

Following Chicago Mayor Rahm Emanuel’s comments Sunday regarding U.S. Steel’s dumping of toxic chromium into Lake Michigan — including plans to sue the company — the company issued a response.

“U. S. Steel is committed to complying with all environmental standards, to ensuring the safety of our employees and our neighbors in the communities in which we live and operate, and to safeguarding our shared environment.  We take that responsibility very seriously and recognize this as a critical aspect of our role as a member of each community in which we operate.  We also take every incident seriously.  We have worked with appropriate government agencies in the past as effectively as possible and continue those efforts as part of our work to continuously improve our environmental compliance processes.”

“With regard to the October 26 operating excursion at our Midwest Plant, we want to reiterate the event did not pose any danger to water supply or human health, and we promptly communicated the issue to the Indiana Department of Environmental Management (IDEM).”

The City of Chicago plans to sue to company after the latest dumping incident in October. According to the Chicago Sun-Times, city attorneys began proceedings required by the Clean Water Act in order to file suit against U.S. Steel.

The company also had a chemical spill at its Portage, Indiana facility in April. Hexavalent chromium was released into a waterway about 100 yards from Lake Michigan.

Japanese Steel Output Down

According to Reuters, Japan’s crude steel output fell 1% in October from a year earlier to 8.97 million tons.

Temporary halting of production at some facilities contributed to the drop, according to the report.

Glencore Copper Head Steps Down

Glencore’s head of copper has stepped down on the heels of an internal review, Bloomberg reported.

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Aristotelis Mistakidis, the copper head, and executives Liam Gallagher and Tim Henderson offered to step down after an internal review found “material weaknesses” in financial reporting controls at the firm’s Katanga Mining Ltd. operation in the Democratic Republic of Congo.

The internal review found that the com,any overstated copper output in 2014 by about 7,900 metric tons and failed to disclose additional compensation paid to named executive officers, according to the report.