Steel

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This morning in metals news, President Trump claimed his tariffs are saving the U.S. steel industry, steel supplies from Japan and South Korea to India have increased, and Turkey hits back with new tariffs in response to the U.S.’s doubling of the steel and aluminum tariffs.

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Saving Steel

In an interview with the Wall Street Journal, Trump argued that his tariff on steel is saving the U.S. steel industry.

He also argued that in the future U.S. steelmakers will face mostly domestic competition as a result of the tariffs.

Indian Steel Import Levels from Japan, South Korea Surge

According to a Reuters report, levels of steel heading from Japan and South Korea to India have increased significantly as a result of tariffs.

Per the report, citing government data, during the April-June period imports from South Korea were up 31%, while imports from Japan jumped 30%.

Turkey Hits Back

The recent tension between the U.S. and Turkey continued to rise Wednesday, as Turkey announced tariffs it would apply to U.S. goods.

The announcement comes after President Trump announced the U.S. would double the tariff rates on steel and aluminum for Turkey, bringing them to 50% and 20%, respectively.

Turkey announced tariffs on American automobiles, alcohol and tobacco.

The U.S. has lobbied for the release of detained American pastor Andrew Brunson, while Turkey has continued to ask for the extradition of exiled religious leader Fethullah Gulen, whom the government claims was behind the failed 2016 coup.

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The crisis has seen the value of the Turkish lira plummet in the plummet, hitting a record low against the dollar earlier this week before beginning to recover on Tuesday and Wednesday.

Even if U.S. steelmakers have been slow to add capacity following President Trump’s tariff protection, it would seem foreign steel makers are willing to commit to domestic U.S. production.

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The Financial Times this week reported on the announcement by BlueScope Steel, Australia’s biggest steelmaker, to examine adding 600,000 to 900,000 metric tons per year of steelmaking capacity to its North Star business in Ohio. This would raise the Ohio plant’s existing production of 2.1 million metric tons per year to some 3 million tons at a cost of between U.S. $500 million and $700 million.

The project would involve the addition of a third electric arc furnace and a second slab caster, according to the Financial Times report. A decision is expected at the company’s February 2019 annual results pending the outcome of the feasibility study, by which time a clearer picture may emerge of what the tariff landscape is going to look like longer term.

Interestingly, Australian steelmakers are exempted from the tariffs; in theory, BlueScope could have invested at home. Australia, however, along with Argentina, are subject to quota limits, so ramping up domestic production to meet U.S. demand is not considered a viable option.

According to the Financial Times, domestic U.S. steel producers are, not surprisingly, doing rather well from the tariffs.

The resulting price rises have fueled a rally in U.S. domestic prices, helping firms like ArcelorMittal surpass forecasts previously set by analysts. Arcelor’s earnings came in at $5.59 billion before interest, taxes, depreciation and amortization for H1 2018. That represented an increase of 28.6% on the same period a year before, as half-year sales rose 17.6% year-on-year in value terms to $39.2 billion, primarily due to higher steel selling prices. Net income was up by almost one-third to $3.06 billion. It hasn’t yet resulted in Arcelor announcing any increased investment in domestic U.S. production capacity — the real aim of the tariffs — but, arguably, steelmakers are waiting to see how the whole tariff situation develops and whether they are truly here to stay (in which case, investment could result).

The U.S. Department of Commerce found foreign steel accounted for about one-third of the 107 million metric tons of steel the U.S. economy used in 2017, the Weekly Standard reported.

Although U.S. producers still have a commanding market share, the report concluded that inexpensive foreign imports were causing domestic steelmakers to lose money, lay off workers, and close plants last year.

U.S. steel plants in 2017 ran at just 72% of capacity, below the 80% level they are widely considered necessary to be profitable. The blame for poor capacity utilization fell firmly at the door of “excessive imports of steel.”

Well, that was last year; this year is something very different.

Following tariffs, steel prices are up sharply, profits are up at the domestic mills and so is capacity utilization. The domestic mills have the option to price balance towards full capacity, shielded as they are now behind a 25% import tariff. They may choose to take higher prices and forego full capacity or adjust pricing to achieve full capacity; we will see what policy has been adopted when Q3 and H2 figures are released.

It is unlikely significant new capacity will be added in the short term, though, despite talk of planned new capacity.

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According to Reuters, steel output in the United States rose 2.9% in the first half to 41.9 million metric tons and gained 0.8% in June to hit 6.9 million tons for the month. Data from the American Iron and Steel Institute (AISI) show capacity utilization at U.S. mills in the year to July was 76.4%, up from 74.4% in 2017, suggesting domestic mills generally are opting for better prices as a route to profitability rather than pricing out tariffed imports.

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This morning in metals news, domestic raw steel production for the week ending Aug. 11 jumped 5% compared with the same week last year, the U.S. has raked in more than $1.4 billion from its steel and aluminum tariffs, and China’s aluminum production surged in July.

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U.S. Raw Steel Production Surges Last Week

According to data released by the American Iron and Steel Institute (AISI), U.S. raw steel production jumped 5% year over year for the week ending Aug. 11.

Production for the week hit 1,855,000 net tons at a capacity utilization rate of 79.1%. Production was also up 1.5% from the previous week ending Aug. 4.

Tariff Windfall

The Trump administration’s tariffs on steel and aluminum have yielded revenue amounting to more than $1.4 billion, according to a recent Congressional report cited by CNBC.

As for the much-criticized tariff exclusion process — many have lamented the slow rate at which the Department of Commerce has processed the requests — as of Aug. 6. the Department of Commerce had received 33,099 requests, approving 1,428 requests and denying 702.

Chinese Primary Aluminum Production Rises

July proved to be a productive month in China for primary aluminum production.

The country saw production surge 12% year over year, according to a Reuters report.

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According to the report, citing National Bureau of Statistics data, China produced 2.93 million tons of primary aluminum in July. The output marked a 3.4% increase from the previous month, according to the report.

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This morning in metals news, U.S. steel mills shipped 3.2% more steel in June 2018 than in June 2017, President Donald Trump announced the doubling of steel and aluminum tariff rates against Turkey, and Ford is feeling the effects of rising metals prices.

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Steel Mills See Year-Over-Year Shipment Rise

U.S. steel mills shipped 7,988,026 net tons of steel in June, according to data released by the American Iron and Steel Institute (AISI).

The total marks a 0.8% decrease from the previous month, but a 3.2% increase from June 2017.

In the year to date, shipments have amounted to 47,304,057 net tons, a 4.1% increase compared with the first six months of 2017.

Trump vs. Turkey

While much of the focus has been on the deterioration of relations or escalation of tensions with China and even the E.U., in recent weeks the U.S.’s relationship with Turkey has taken a hit.

President Donald Trump announced Friday that his administration will double the steel and aluminum tariffs on Turkey, bringing them to 50% and 20%, respectively.

The relationship between the two countries has taken a hit in recent months following the U.S.’s imposition of Section 232 tariffs on steel and aluminum. In addition, last week the U.S. imposed sanctions on Turkish officials in relation to Turkey’s detainment of American pastor Andrew Brunson on charges of espionage.

Price Pressure

Rising steel and aluminum prices are weighing on Ford’s business, one Ford official said this week.

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Jim Farley, president of global markets, called the rising costs a “significant headwind,” as quoted by Bloomberg, but added the automaker does not plan on passing on the added costs to consumers.

The Raw Steels Monthly Metals Index (MMI) fell one point further this month, dropping to 89 from the previous 90 reading.

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The Raw Steel MMI has returned to May 2018 levels. The slight drop came as a result of slower domestic steel price momentum.

Domestic steel prices still remain at a more than seven-year high. However, the pace of the increases seems to have slowed recently. Domestic steel prices — with some exceptions — are mostly trading sideways, and some steel forms have started to drop slightly.

Source: MetalMiner data from MetalMiner IndX(™)

Plate and HRC ended higher last month, while CRC and HDG prices dropped. Long lead times in Q2 and Q3 combined with supply shortages have supported domestic steel prices. However, lead times seem to be shortening now, which may causes prices to drift lower.

Historical steel price cyclicality could cause prices to move lower at some point. Domestic steel prices have stayed in a sharp uptrend since January 2018. Prices may begin to come off slightly at some point this year.

Chinese Steel Prices

So far in August, Chinese steel prices have increased. Chinese steel prices appear to be in recovery and have started an uptrend, after a slight downtrend, since the beginning of the year.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese steel prices tend to drive U.S. domestic steel prices. Therefore, buying organizations may want to keep a close eye on pricing.

Domestic Shredded Scrap

Shredded scrap prices traded sideways this month. Scrap prices commonly follow the same trend of domestic steel prices.

Scrap prices have been in an uptrend since the beginning of the year (along with steel prices). The pace of the increases appears to be less sharp, but scrap price movements this year appear to be less volatile than steel prices.

Source: MetalMiner data from MetalMiner IndX(™)

What This Means for Industrial Buyers

Since steel prices remain high, buying organizations may want to closely follow price movements to decide when to commit mid- and long-term purchases.

Buying organizations looking for more clarity on when to buy and how much to buy may want to take a free trial now to our Monthly Metal Buying Outlook.

Actual Raw Steel Prices and Trends

The U.S. Midwest HRC 3-month futures price fell this month by 4.34%, falling to $815/st.

Chinese steel billet prices decreased again this month by 4.05%, while Chinese slab prices fell 2.1% moving to $626/mt.

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The U.S. shredded scrap price closed the month at $371/st, trading flat from last month.

The Automotive Monthly Metals Index (MMI) retraced four points, hitting 99 for our August MMI reading.

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U.S. Auto Sales

July was a down month for Ford, which saw its U.S. sales drop 3.1%. Ford car sales were down 27.7% year over year, and 15.7% in the year to date.

However, truck sales continue to shine, with sales rising 10.2% in July.

“And when you look at the underlying economy, it remains very healthy, and that would be indicative of what we’re seeing in the truck market, with F-Series posting gains and vans posting very big gains for Ford Motor Company,” Ford Sales Analyst Erich Merkle said.

It was a different story for Fiat Chrysler, which reported a 6% sales increase compared with July 2017. According to a company release, its Jeep brand had its best July ever, with retail sales up 16%.

Honda reported an 8.2% year-over-year drop, but touted its growing truck sales.

“For the first time in our company’s history, the Honda brand is on pace this year to sell more light trucks than passenger cars,” said Henio Arcangeli Jr., senior vice president of the American Honda Automobile Division, in a release. “Honda’s unique flexibility within our U.S. manufacturing operations has played a critical role in our ability to adjust our production mix and capitalize on the market’s shift toward light trucks.”

Toyota reported its July sales were down 6.0% year over year, but noted July marked its best month ever for light-truck sales.

General Motors no longer reports sales on a monthly basis, instead opting earlier this year to report on a quarterly basis.

Pumping the Brakes?

Late last month, President Donald Trump and European Commission President Jean-Claude Juncker met at the White House, a meeting that yielded an agreement of sorts to pump the brakes on new tariffs.

However, cars were exempted from the agreement between the two leaders.

A U.S. Section 232 investigation into imports of automobiles and automotive imports is still ongoing. The Department of Commerce launched the investigation using the Section 232 statute — also used to impose steel and aluminum tariffs — in late May and a public hearing was held July 19.

GM Seeks Exemption for Buick Envision SUV

Although the Trump administration has yet to impose new tariffs on imported automobiles, General Motors has asked that its Buick Envision SUV, which is made in China, be exempted from any new tariffs, the Detroit Free Press reported.

Most of GM’s sales of the SUV model come from China, according to the report, and the company argues production in the U.S. would thus not be feasible.

Earlier this summer, GM expressed its opposition to the imposition of new automotive tariffs, saying they would lead to job losses and would impact the automaker’s competitiveness in the global marketplace.

Actual Metal Prices and Trends

It was an overall down month for prices within the automotive basket of metals.

U.S. HDG steel fell 0.7% to $1,103/st. U.S. platinum bars fell 1.8% to $837/ounce, while palladium bars dropped 2.1% to $928/ounce.

Chinese primary lead dropped 14.7% to $2,722.87/mt. LME copper fell 6.1% to $6,236.50.

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U.S. shredded scrap steel held steady at $371/st. Korean aluminum also held steady, sticking at $3.75/kilogram.

The Construction Monthly Metals Index (MMI) lost three points this month, hitting 90 for our August MMI reading.

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U.S. Construction Spending, Employment

According to U.S. Census Bureau data, U.S. construction spending in June fell 1.1% from the previous month.

Spending in June hit $1,317.2 billion, down from $1,332.2 billion in May. However, the June spending time marks a 6.1% increase from the June 2017 spending total of $1,241.3 billion.

For the first six months of the year, spending hit $619.9 billion, marking a 5.1% increase from the same period in 2017.

Broken down further, private construction spending hit a seasonally adjusted annual rate of $1,019.8 billion, or 0.4% below the revised May estimate of $1,023.9 billion. With private construction, residential construction hit $568.3 billion in June, down 0.5% from the revised May estimate of $570.9 billion. In addition, nonresidential construction was down 0.3%, amounting to $451.5 billion in June.

As for public construction, spending in June hit $297.4 billion, 3.5% below the revised May estimate of $308.3 billion. Under the umbrella of public construction, educational construction was  down 11%, amounting to $67.9 billion. Highway construction was down 1.3%, hitting $93.9 billion for the month.

Meanwhile, according to preliminary Bureau of Labor Statistics (BLS) data, construction employment hit 7,222,000 in June, up from 7,209,000 in May.

Billings Growth Slows

Architecture billings growth continued in June, according to the Architecture Billings Index (ABI), but the pace of growth slowed last month. Nonetheless, June marked the ninth straight month of billings growth.

The June ABI hit 51.3, down from the previous month’s 52.8 (any reading above 50 indicates growth).

By region, however, the billings landscape was a mixed bag.

The South region posted a 57.4, while the Northeast posted modest growth with a reading of 50.2. The Midwest and West lagged behind, however, with readings of 49.8 and 46.9, respectively.

In this month’s survey of industry professionals, many indicated rising expenses was a concern.

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“More than nine in 10 firms (92 percent) indicated that they are concerned to some degree about managing the costs of running their firm at the present, with 52 percent reporting that it is a major concern, and 40 percent reporting that it is a minor concern,” the ABI report states. “Small firms tended to be less concerned about firm expenses than large firms, although firms of all sizes were generally concerned.”

Actual Metal Prices and Trends

The U.S. shredded steel scrap price held flat at $371/short ton.

Chinese rebar fell slightly, dropping 0.2% to $623.84/metric ton. Chinese H-Beam steel fell 6.0% to $606.22/mt.

European commercial 1050 sheet aluminum fell 4.4% to $2,867/mt.

Chinese iron ore PB fines fell 2.8% to $77.06/dry metric ton.

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This morning in metals news, a trade association looks to raise money to support its lawsuit against the Section 232 steel tariff, Honda’s quarterly earnings hit a 12-year high and the oil price’s recent dip may just be temporary.

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American Institute for International Steel Seeks Funding for Lawsuit

The American Institute for International Steel is looking for funding from its members to support its lawsuit against the Section 232 tariff on steel, the Times of Northwest Indiana reported.

The trade association filed the lawsuit in late June, arguing the Section 232 statute is unconstitutional.

Honda Avoids Tariff Effect … For Now

Honda reported its quarterly earnings Tuesday, revealing profits soared to a 12-year high, Reuters reported.

In the U.S. market, Honda touted its local sourcing efforts to keep costs down (as others struggle with rising materials costs).

“Roughly 90 percent of our steel and aluminum needs in the United States are procured locally,” Honda Senior Managing Director Kohei Takeuchi was quoted as saying. “Overall we’re not seeing a big impact (from tariffs) so far.”

What’s Going on With the Oil Price?

As MetalMiner Executive Editor Lisa Reisman noted during last week’s MetalMiner Budgeting Workshop, the oil price is one of a few crucial factors in considering future price fluctuations of metals.

According to oilprice.com, WTI crested $70/barrel for the first time in two weeks. The recent slide in oil prices could be temporary, the report argues.

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And as Reisman noted last week, rising oil prices generally correlate with rising metals prices.

We had a little mythbusting discussion the other day here at MetalMiner®, including, among other examples, that tracking raw material inputs is no predictor of finished product prices.

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Take, for example, iron ore.

Prices fell this spring and have been bouncing around either side of $65/ton. However, in China, the world’s biggest consumer, finished steel prices and production have been ripping along.

According to Reuters, China produced 80.2 million tons of crude steel last month, setting a new daily average production record for a third month in a row at 2.67 million tons.

Despite strong domestic steel prices, China’s steel exports last month rose to 6.94 million tons, their highest level since July 2017. Older, more polluting mills continue to be shuttered as part of Beijing’s program to curb pollution via increased inspections.

Reuters sees this as evidence that newer mills have ramped up operations to cash in on fat margins. China’s steel output in the first half of the year rose 6% to 451.2 million tons.

Richard Lu, analyst at CRU in Beijing, is quoted as saying that mills were earning a profit margin of about 800 yuan ($119.50) per metric ton of steel, while analysts at Huatai Futures put profit margins for mills in northern China at over 1,000 yuan per ton — one of the highest on record, the news source says.

Mill utilization still has further to go though; despite record output, mills are not running flat out. Monthly utilization rates reached 71.6% in June — the highest since October — but suggestive output levels could continue into the winter heating season, even as mills around major cities are made to close to reduce pollution.

However, that would presuppose demand remains robust; signs are beginning to emerge that demand is softening.

RBC Capital Markets mining analyst Paul Hissey is quoted as saying the bank expects steel demand to fall in H2 due to a slowdown in infrastructure and property demand and continued volatility around tariffs.

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Ultimately, a softening in steel demand will lead to a fall in steel prices; it is the anticipation of such that is a factor in falling iron ore prices.

As we noted, the correlation in raw material and finished product prices is stronger in falling markets than rising, despite the raw material price falls leading the finished product.

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This morning in metals news, U.S. imports of steel dropped from May to June, Novelis is making a $2.6 billion acquisition, and President Donald Trump has agreed to work with the E.U. to remove trade barriers.

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Steel Imports Drop

U.S. imports of steel fell 15.5% from May to June, the American Iron and Steel Institute reported this week.

Through the first six months of the year, imports were down 9.8% compared with the first six months of 2017.

Novelis to Buy Downstream Aluminum Producer Aleris

Aluminum firm Novelis Inc. announced it will buy downstream producer Aleris Corporation for a cost of $2.6 billion (including assumption of debt).

Aleris is a global supplier of rolled aluminum products.

“Acquiring Aleris is the right opportunity at the right time as they are set for transformational growth,” said Steve Fisher, president and CEO of Novelis, in a company release. “The significant investments they’ve made in the high-demand, high-value aerospace and automotive segments have resulted in favorable long-term, global contracts. These investments, coupled with a diverse and talented workforce, will add tremendous value to our organization and allow us to deliver the highest quality innovative aluminum solutions to our customers.”

Trump Says He Will Work With E.U. to Remove Trade Barriers

Recent weeks have been full of news about rising global trade tensions, but Wednesday President Trump hinted at the beginning of “a new phase” in relations with the E.U.

Trump said he had reached an agreement with European Commission President Jean-Claude Juncker on holding new talks to discuss removing tariff barriers between the U.S. and the 28-member bloc, USA Today reported.

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According to the report, the agreement will include a European commitment to purchase more soybeans from the U.S.