Steel

Here’s what we’re tracking this morning in metals:

  • U.S. steel shipments are up in October. AISI has reported that U.S. steel mills shipped close to 8.2 million net tons in October, a 4.6% rise over the month of September — and a 6% increase from the 7.7 million net tons shipped in October 2017.
  • In a weekly briefing from Shanghai Metals Market released today, the near-term outlook appears to be weak for copper, aluminum and lead, according to the publication.
    • “Copper prices across Chinese markets are likely to hover in a wide range in the short term as supply growth slows and as demand improves,” the briefing stated. “China’s fixed-asset investment in the power sector rebounded for two consecutive months to -7.6% in October.”
    • Poor supply and demand in the aluminum market in China is likely to continue in December, according to SMM. Primary aluminum inventories across eight consumption areas in China are down by nearly 3% over the week ending Nov. 29, while 6063 billet stocks rose 3% across five major consumption areas, according to SMM data.
    • “China’s actual consumption of refined lead is estimated to decline 0.7% to 411,000 mt in December as demand weakens,” the briefing stated.

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  • Finally, in the non-news news, the U.S. Commerce Department released Secretary Wilbur Ross’ comments on the recent unanimous decision for the ITC’s final affirmative injury determinations in the antidumping duty and countervailing duty investigations involving Chinese imports of common alloy aluminum sheet (which came down Nov. 7): “The Department of Commerce will not stand idly by while products are illicitly forced upon U.S. markets,” said Ross. “I applaud the International Trade Commission for this determination in holding bad actors accountable for their actions on the international stage.”

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This morning in metals news, the state of falling global steel prices is a temporary condition attributable to Chinese overproduction ahead of winter cuts, according to miner Brazilian miner Vale; Chilean copper exports in November were less valuable; and the arrest of a Huawei Technologies executive has caused concern that it could cast a shadow on ongoing U.S.-China trade talks.

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Falling Steel

Brazilian iron ore miner Vale said the recent dip in global steel prices is temporary, a result of a Chinese surge in production just ahead of scheduled winter cuts, Reuters reported.

Unlike last year, Beijing has delegated authority on the exact specifications of the winter cuts — aimed at tackling pollution in the country’s industrial hubs — to local authorities this year, as opposed to the blanket cuts it imposed last year.

Chilean Copper

The world top copper producer, Chile, announced a budget surplus for November, but the value of its copper exports fell, according to a Reuters report citing the country’s central bank.

The value of its copper exports fell 12.5% in November, according to the report.

Arrest of Huawei CFO Raises Concerns Regarding U.S.-China Trade Talks

The Group of 20 (G20) summit saw President Donald Trump and President Xi Jinping agree to commencing a 90-day negotiating window on trade — a positive, if still uneasy step toward potential resolutions to the ongoing U.S.-China trade conflict.

However, the arrest of Huawei CFO Meng Wanzhou, at the behest of the U.S., has led to concern that it could impact the footing — uneasy footing — established for the current round of trade talks.

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According to the Washington Post, citing analysts in Beijing, the Chinese government, while upset about the arrest, will attempt to not allow it to impact the trade talks going forward.

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This morning in metals news, steel imports coming into the U.S. continue to be down from last year’s levels, Shanghai steel prices are down and the sharp corrective trend in iron ore prices could be coming to an end.

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U.S. Steel Import Market Share at 21% in November

According to a report by the American Iron and Steel Institute (AISI), U.S. steel import market share reached 20% for November.

Market share for the year to date is 23%, according to the report.

MetalMiner’s Take: What nuggets in the steel import data should buying organizations pay special attention to?

MetalMiner finds the rising import numbers of HRC and plate of greatest interest because it suggests the arbitrage between HRC prices (as well as plate prices) in the U.S. and elsewhere are so significant that buying organizations still achieve a lower total cost — even after paying a 25% import duty.

Rising imports for these two products will continue to put price pressure on domestic steel prices. Rising import levels (and 2018 imports for both products are higher than 2017 levels), suggest that the Q4 bounce that we have seen in prior years may not appear at all. The best way to gauge the trend is to track the spread between countries, factoring in freight, margin, duty, etc.

MetalMiner forecast subscribers can receive this kind of analysis via the MetalMiner Monthly Outlook.

Shanghai Steel Prices Fall

According to a Reuters report, Shanghai steel prices fell Thursday on oversupply concerns.

The most-traded SHFE rebar contract fell to 3,375 ($484.55) yuan per ton from an opening price of 3,360 yuan ($488.18) per ton.

An Iron Ore Recovery?

After a November that saw iron ore prices tumble, iron ore may be headed for a more stable period.

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According to Goldman Sachs, cited by Business Insider Australia, the iron ore price is expected to hold in the $60-$70 range over the coming 12 months.

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Price forecasters are always looking out for apparently unrelated factors that correlate to the price movement they are tracking.

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Sometimes the relationship seems bizarre.

At first sight, a link between oil prices and aluminum prices appears tenuous until you consider that the oil price is taken as a proxy for energy prices in general, particularly as fuels like liquefied natural gas (LNG) can be linked to the crude oil price.

So, here is one for you. If you would like a leading indicator to price movements for coal, steel and energy-intensive base metals, the South China Morning Post suggests, or at least links, pollution levels in major Chinese cities to production levels of steel and aluminum.

According to the argument, if pollution levels are high it is because production is high, and if production is high then the market is going to be oversupplied and prices will fall.

The South China Morning Post compares pollution levels this year to last around Beijing and other major eastern seaboard cities. Last winter, local government officials in Beijing restricted — or simply banned — the burning of coal across much of northern China, the article reports. Consequently, in early December average pollution levels in Beijing were less than half the concentrations seen in the previous two years.

Beijing’s citizens no doubt welcomed the blue skies. Unfortunately, coal is not just used as an energy source for electricity generation — it is also burned as fuel by millions to heat their homes, workplaces and schools, the South China Morning Post reports.

With industry slowing and reports of school children facing hardship, Beijing relented, and by late December to early January, the smoke had returned.

Read more

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On Monday, miner Rio Tinto announced it had made the first shipment of bauxite from its Amrun mine in Australia, six weeks ahead of schedule.

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According to a company announcement, the $1.9 billion investment in the Amrun mine serves to replace production from the depleting East Weipa mine. The Amrun mine is expected to hit its full production rate of 22.8 million tons next year.

“Bringing Amrun online further strengthens our position as a leading supplier in the seaborne market. We have the largest bauxite resources in the industry and are geographically well positioned to supply China’s significant future import needs, as well as supporting our refinery and smelting operations in Australia and New Zealand.

“The Amrun mine will ensure generational jobs for Queenslanders and build significantly on our 55-year history on the Western Cape.”

The first shipment was hailed in a ceremony on the Western Cape York Peninsula, seeing the more than 80,000 tons of bauxite off to Rio Tinto’s Yarwun alumina refinery in Gladstone.

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Rio Tinto, the world’s largest bauxite producer, produced 50.8 million tons of bauxite last year. Bauxite ore is the world’s main source of aluminum. Bauxite is refined into alumina, which is then refined into pure aluminum.

According to the U.S. Geological Survey, global bauxite production hit 300,000 tons in 2017.

The miner’s announcement came after last week’s announcement of a $2.6 billion investment in the Western Australia Koodaideri iron ore mine, which the miner said will be its “most technologically advanced mine” once completed.

According to a Rio announcement, construction on the mine is set to begin next year, with production expected to begin in late 2021. The mine is expected to have an annual capacity of 43 million tons.

“Koodaideri is a game-changer for Rio Tinto,” Rio Tinto chief executive J-S Jacques said. “It will be the most technologically advanced mine we have ever built and sets a new benchmark for the industry in terms of the adoption of automation and the use of data to enhance safety and productivity.”

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This morning in metals news, U.S. steel production through Nov. 24 was up 5.6% compared with the same period last year, copper prices fell back Tuesday and Ford’s November U.S. sales were down.

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U.S. Steel Production

According to a recent American Iron and Steel Institute (AISI) report, U.S. steel production for the year (through the week ending Nov. 24) was up 5.6% compared with the same time frame in 2017.

For the period through Nov. 24, the U.S. produced 85.6 million tons at a capacity utilization rate of 78.1%, up from 81.1 million tons at a 74.2% rate last year.

For the week ending Nov. 24, the U.S. saw 1.9 million tons of production at a rate of 81.3%, up from 1.7 million tons at a 73.3% rate for the same week in 2017.

Copper Prices Fall

After making gains Monday, copper prices fell back Tuesday, according to a Reuters report.

Three-month London copper dropped 0.2% Tuesday, while the most-traded SHFE contract fell 0.7%, according to the report.

Ford November Sales

November proved to be a down month for Ford in the U.S. market.

The automaker’s November sales were down 6.9% year over year, with 196,303 units sold.

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Even truck and SUV sales slumped, down 2.3% and 4.9% year over year, respectively.

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This morning in metals news, the U.S., Canada and Mexico formally signed the trade deal that will serve as the successor to the North American Free Trade Agreement (NAFTA), aluminum associations in several countries sent Group of 20 (G20) leaders a joint letter asking them to tackle overcapacity, and President Donald Trump and President Xi Jinping are set to meet this weekend at the G20 summit in Argentina.

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U.S., Canada, Mexico Sign UMSCA

After a Sept. 30 announcement that the U.S., Canada and Mexico had concluded talks on the trade deal —dubbed the United States-Mexico-Canada Agreement (USMCA) — set to replace NAFTA, the parties involved made it official this morning.

Trump, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto, on his last day in office, signed the trade deal this morning during the G20 summit in Buenos Aires, Argentina.

However, despite the signing, dialogue over trade among the three countries is not yet at an end. Mexican and Canadian leaders have indicated they will continue to push for the U.S. to remove its Section 232 steel and aluminum tariffs on the two countries’ metals.

The first round of talks focusing on renegotiation and modernization of NAFTA kicked off in August 2017. The U.S. initially pushed for a resolution by the end of 2017, but the negotiations continued into the new year. Elections in the three countries — including Mexico’s July 1 presidential election — came and went without a deal.

Among the key topics of negotiation were automotive content rules of origin and wages for Mexican workers — in the USMCA, the regional content benchmark jumps to 75% from 62.5%, while also requiring that 40-45% of auto content be produced by workers making at least $16 per hour.

The country’s leaders delivered comments at the USMCA signing ceremony in Buenos Aires, with Trump calling the NAFTA successor the “largest, most significant, modern, and balanced trade agreement in history.”

“All of our countries will benefit greatly,” Trump said. “It is probably the largest trade deal ever made, also. In the United States, the new trade pact will support high-paying manufacturing jobs and promote greater access for American exports across the range of sectors, including our farming, manufacturing, and service industries.”

Trudeau, meanwhile, said the new deal “maintains stability” for Canada’s economy and praised the negotiating teams involved, but was less effusive in his praise of the USMCA than Trump and Peña Nieto.

The Canadian prime minister also reiterated sentiment regarding the removal of the U.S.’s steel and aluminum tariffs.

“As I discussed with President Trump a few days ago, the recent plant closures by General Motors, which affects thousands of Canadian and American workers and their families, are a heavy blow,” he said. “Make no mistake: We will stand up for our workers and fight for their families and their communities.

“And, Donald, it’s all the more reason why we need to keep working to remove the tariffs on steel and aluminum between our countries.”

In addition, Chapter 22 of the USMCA includes provisions on state-owned enterprises (SOEs).

“We have dramatically raised standards for combatting unfair trade practices; confronting massive subsidies for state-owned enterprises; and, currently, if you look at it, currency manipulation that hurt workers in all three of our countries,” Trump said. “The currency manipulation from some countries is so intense, so bad, and it would hurt Mexico, Canada, and the United States badly.”

Aluminum Associations Want Focus on Overcapacity

Aluminum associations from several countries sent a joint letter to G20 leaders asking them to commit to addressing global overcapacity.

“We urge the G20 to again commit to tackling the issue of market-distorting aluminium overcapacity that stems from state interference and puts aluminium producers across the entire value chain at a profound disadvantage,” the letter said. “Free trade is an engine of prosperity, social mobility and peace – but free trade is only possible and meaningful when businesses are able to operate on an equal footing across the globe.”

The letter was signed by the heads of the aluminum associations in the U.S., Europe, Brazil, Japan, Canada and Mexico.

Trump, Xi Meeting Could Be U.S.-China Trade Flashpoint

Sticking with the G20 summit in Argentina, President Trump and President Xi are set to meet at the event, which will continue through tomorrow, Dec. 1.

The U.S. imposed tariffs, at a 10% rate, on $200 billion worth of Chinese goods in September. However, that rate is set to make a sizable jump to 25% as of Jan. 1. The U.S. had previously imposed a total $50 billion in tariffs on Chinese goods.

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Trump has also threatened to impose tariffs on all remaining Chinese imports — approximately $257 billion worth — although no moves have been made yet on that front.

It may be in an extremely preliminary stage, but South Korean steelmaker Hyundai seems keen on setting up a steel plant in India.

A team from the Hyundai group visited Visakhapatnam in South India, where the steel plant of Rashtriya Ispat Nigam Ltd (RINL) is located, and spoke of looking at the possibility of setting up a steel plant in partnership with the public sector company, according to a Business Standard report.

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The Telegraph quoted P.K. Rath, chairman and managing director of RINL, acknowledging the visit in October, saying the South Korean major was indeed interested in a joint venture (JV).

Rath told The Telegraph that Hyundai was contemplating setting up a flat steel plant, especially since RINL was already producing long products. Though too early in the day, the plant could have an annual capacity of 3 million tons. Flat steel products like sheets are used in automobiles and consumer durables.

In addition to Hyundai Steel, the Hyundai-Kia Motor Group has steel companies, like the Hyundai Special Steel and BNG Steel Co., Ltd. Specifically, in India, Hyundai has a steel service center under Hyundai Steel India Private Limited (HSIPL), which caters to the steel requirements of Hyundai Motors India Limited.

The delegation of Hyundai company representatives, including the South Korean ambassador, visited the Visakhapatnam Steel Plant. Sources say government-to-government talks for setting up such a project were already on. The delegation will now give its report to the government.

Steel analysts here said Hyundai setting up a JV plant in India would be a good business decision for the South Korean group, as Hyundai not only sells automobiles in India — for which steel is required — but two other Korean brands, Samsung and LG, have a huge presence in the country, with both requiring flat steel products.

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RINL itself is on the way to ramping up, aiming for a capacity of 7.3 million tons next year.

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This morning in metals news, Norsk Hydro sees global aluminum demand picking up 2-3% next year, the Office of the United States Trade Representative (USTR) released a statement on China’s automotive tariffs and Steel Dynamics shares bounced back from a 14-month low.

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Aluminum Demand in 2019

Norwegian aluminum firm Norsk Hydro says aluminum demand is expected to tick up 2-3% in 2019, featuring a continued deficit in the market.

In addition, President and CEO Svein Richard Brandtzæg commented on the situation at Hydro’s Alunorte alumina smelter in Brazil, as it aims to return to full capacity there after running at 50% for nine months.

“We are aiming to establish a common platform with authorities and the court system to have an aligned way forward towards full production, utilizing the best available technology,” Brandtzæg said. “We have what it takes: the right people, the right technology and the right spirit.”

MetalMiner’s Take: Norsk Hydro’s announcement that aluminum demand is expected to rise by 2-3% in 2019 is conservative.

Demand has been rising at 5-6% since the financial crisis and Norsk Hydro’s lower numbers reflect a slowing global economy, which might be hard for those in the more buoyant U.S. to grasp. However, the rest of the world, though growing, is doing so at a slower pace than in recent years.

The issue for the aluminum price has not been lack of demand but surplus of supply. Irrespective of reports the world outside China is in deficit, exports of semi-finished products from China have more than made up for the Western world’s shortfall in primary metal. This is despite the LME forward curve providing sufficient incentive for the stock and finance trade to roll forward maturing contracts — Chinese exports are keeping the market amply supplied.

Lighthizer: China’s Automotive Tariffs Are ‘Egregious’

The USTR released a statement Wednesday commenting on China’s tariffs on U.S. automobiles, a couple of days before the G20 summit is scheduled to begin in Buenos Aires.

“As the President has repeatedly noted, China’s aggressive, State-directed industrial policies are causing severe harm to U.S. workers and manufacturers,” USTR Robert Lighthizer said in a release. “We are continuing to raise these issues with China. As of yet, China has not come to the table with proposals for meaningful reform.

“China’s policies are especially egregious with respect to automobile tariffs. Currently, China imposes a tariff of 40 percent on U.S. automobiles. This is more than double the rate of 15 percent that China imposes on its other trading partners, and approximately one and a half times higher than the 27.5 percent tariff that the United States currently applies to Chinese-produced automobiles. At the President’s direction, I will examine all available tools to equalize the tariffs applied to automobiles.”

MetalMiner’s Take: Lighthizer’s comments come at an interesting time — just before the G20 summit in Argentina.

Most trade agreements between countries do not include equal duties across categories of goods. The U.S. exports about 250,000 automobiles annually to China, while the U.S. imports only about 50,000 vehicles from China.

More likely, this announcement creates additional negotiating power for the Trump administration as it seeks to extract concessions from China, in general, over Section 301 tariffs, Section 232 and the trade deficit with China.

Steel Dynamics Bounces Back

Earlier this week, Steel Dynamics announced plans to build a new electric arc furnace (EAF) flat roll steel mill, expected to be located in the southwestern U.S.

According to a company release, the mill is expected to have an annual capacity of 3.0 million tons.

“The current estimated investment is $1.7 billion to $1.8 billion, with anticipated direct job creation of approximately 600 well-paying positions, and numerous opportunities for indirect job growth from other support service providers,” the release stated.

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Even so, the company’s share price plunged 9% Tuesday. However, Wednesday afternoon it jumped 3.2%, off of a 14-month low, following a congratulatory tweet by President Donald Trump, per a MarketWatch report.

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With the United States-Mexico-Canada Agreement (USMCA) potentially being signed by the three parties this week during the G20 Summit in Buenos Aires — which will take place over two days, Nov. 30-Dec. 1 — the trade deal and tariffs are on the minds of industry CEOs, from manufacturing to agriculture.

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Several industry executives gathered in Washington, D.C. Tuesday for a panel discussion on the impact of the U.S.’s Section 232 steel and aluminum tariffs and their relationship to the USMCA.

Speaking at the event were:

  • Michael Dykes, CEO, International Dairy Foods Association
  • Jennifer Thomas, vice president, Federal Government Affairs, Alliance of Automobile Manufacturers
  • Buddy Stemple, CEO of Constellium, Aluminum Association member
  • Brandon Skall, CEO and co-founder, D.C. Brau, Brewers Association member
  • Catherine Boland, vice president, legislative affairs, Motor Equipment Manufacturers Association

Heidi Brock, president and CEO of the Aluminum Association, also offered opening remarks during the event, reiterating the Association’s public stance that Canada and Mexico should be granted quota-free tariff exemptions. (Brock also spoke on the subject during a U.S. International Trade Commission hearing earlier this month.)

The focus should be on China, not Canada and Mexico, Brock said, according to a transcript of her remarks.

“Across-the-board tariffs are not addressing the problem of China’s illegally subsidized aluminum overcapacity,” she said. “We have seen very little evidence that the Section 232 tariffs are impacting behavior in China, which continues to illegally subsidize its aluminum industry. China’s aluminum capacity has grown by 73 percent over the past five years, and an additional eight percent just this year, despite the Trump administration’s tariff regime. In fact, there is some evidence that the tariffs may actually be helping Chinese aluminum producers to enter new markets by increasing China’s price advantage over aluminum produced in North America.”

According to a Reuters report earlier this month, Ildefonso Guajardo, Mexico’s economy minister, said he expects the U.S., Mexico and Canada to sign the USMCA during the G20 Summit.

Buddy Stemple, CEO of Constellium Rolled Products, a downstream aluminum manufacturer based in Ravenswood, West Virginia (primarily serving the aerospace, automotive, packaging and defense industries), applauded the Trump administration for its trade actions on Chinese common alloy aluminum, but, like Brock, indicated the Section 232 tariff on aluminum casts too wide of a net.

“And the Section 232 tariffs, which imposes a 10 percent tariff on virtually all aluminum and aluminum product entering the United States – not just from China but from all countries – is the wrong solution to a real problem,” he said, according to a transcript of remarks. “While well-intentioned, the tariffs are making the U.S. aluminum industry, including Ravenswood, less competitive on the world stage.”

The U.S. aluminum industry does not make enough to support domestic demand, he argued, an argument we echoed yesterday in our discussion of the tariff waiver process:

In the case of aluminum, a real common alloy shortage exists. The exclusion request process ought to consider where the U.S. runs market deficits and shortages versus only who, in theory, can produce the particular metal.

The same can not be said for many of the common forms of steel, where ample domestic supply exists to meet demand.

He also called for a USMCA without steel and aluminum tariffs for Canada and Mexico. In addition, referred to the “unintended consequences” of the administration’s tariff exemption process.

“Requests for massive volumes of common alloy aluminum sheet have been approved, even though some of these imports are coming from China,” he said. “In particular, the approval of exclusion requests by Ta Chen International now allow for import of more than 1 billion pounds of Chinese common alloy sheet – a substantial share of the U.S. market for common alloy products.”

Continuing in the same vein, Jennifer Thomas, of the Alliance of Automobile Manufacturers, referred to the statutory basis for the Section 232 tariffs.

“At the end of the day, Canada and Mexico are not national security threats,” Thomas said.

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All eyes will be on Buenos Aires tomorrow and Saturday, when G20 leaders will convene. Global markets will be looking to the summit for developments with respect to USMCA (i.e., its potential signing and whether the steel and aluminum tariffs will be removed for Canada and Mexico) and whether President Donald Trump and Chinese President Xi Jinping can make any progress with respect to the ongoing U.S.-China trade war.