Steel

Gold has certainly had a roller coaster ride this last 12 months, up to a peak of $1030/ounce before falling back some $200. You’ve heard the popular saying: “When the dollar falls, gold rises.” In reality, the relationship between the euro, the dollar, and gold has been 94% accurate, according to a   Reuters report in Mineweb.

In that case,  what could the current fall in gold tell us about the direction of the euro and the dollar? If the dollar were to make a significant gain against the euro this year, from its current 1.55 towards 1.45 last seen in 2007, we could see a flood of cheaper imports, particularly steel, come into the market. The dollar won’t change the fundamentals of the world steel industry, but a combination of a stronger dollar and more imports could curtail price rises later this year if the assumed relationship between gold, the euro, and the dollar holds true.

–Stuart Burns

Contrary to expectations earlier this year that the weak dollar would boost exports and shield domestic producers from imports, it looks like US imports are set to rise again, according to the Steel Business Briefing. Sighting import license applications SBB says US applications for April came in at 2.64m metric tons, 16% higher than the March preliminary import count of 2.28m tons, which in turn was higher than February. Interestingly, this is despite a continued decline in steel imports from China, suggesting the export taxes imposed in January by the Chinese authorities are having the  desired effect. For April, China will likely fall to fifth place among the largest steel exporters to the US at 168,000 tons. That lags behind Canada at 646,000 tons, Mexico at 239,000 tons, Japan at 193,000 tons, and Korea at 172,000 tons  — based on the license applications.

So if imports are rising, does this mean increased competition for domestic producers and lower prices for consumers in the months ahead? Not yet, as strong global demand, still rising raw material costs and capacity issues mean prices will be high for the second and third quarter at least. Read more

There was a time when if the price of a metal doubled in a year it would be the stuff of headlines. Not only trade journals, but newspapers and even TV channels would post features on the dramatic price rise and the ensuing calamity that was likely to follow ” whether it be a crash in the price or consumers being forced out of business. Nowadays we appear hardened to trebling or even quadrupling of prices in a single year such is the bull market that has prevailed this decade. So as the price of manganese has doubled  in the  last 12 months maybe we can be forgiven for not having taken too much notice. Read more

Shipping Lines use the same principles of supply and demand to judge freight rates as does any other business. Typically a
route in one direction is more popular than the reverse. For example containers travelling from China or Europe to the USA, bringing in finished goods, commanded a higher rate than the same containers being sent back to those overseas markets.

Shipping lines are keen just to re-position the container back to where the demand is greatest ready for the next load and
would happily take low value cargo (at low rates) like metal scrap just to cover the cost of returning the container. The US
demand for imports over the last 10 years has made this a steady one way bet, until about 12 months ago according to the the Wall Street Journal. Read more

It was meant to come to market in 2006, then in 2007 and with much anticipation in Q1 2008. I speak of course of the NYMEX HR steel futures contract. But the start date has been put back yet again. Meanwhile the LME steel billet contract has got off to a quiet but solid start in London back in February. It will  go live later this month. Further shapes and grades are being added as the contract gains popularity but meanwhile North American buyers will have to wait a while longer for the proposed start date of their HR coil contract. Read more

Nothing seems to rattle the tail of a manufacturing organization quite like being asked to participate in a reverse auction. But it is our contention that reverse auctions within the manufacturing sector are way down according to a comment in this article which appeared over on Spend Matters a little while ago. There are several comments in the post worth reading. But I think in context of metals raw materials, semi-finished materials and possibly further worked products containing metals, auctions are down and possibly out but not necessarily for the reasons you might suspect. Read more

It may be illegal (and so is not even officially admitted) but it appears pretty obvious that the Chinese authorities are playing hard ball in their iron ore price negotiations with Rio Tinto and BHP Billiton. Vessels destined for the spot market require licences to discharge, not normally a problem in a country that imports some 40% of its iron ore requirements but only 35% of which are supplied at the long term contract price.

China concluded a contract price with Vale, the world’s largest producer from Brazil, of about USD 76/ton for this year but spot market prices are over USD 200/ton. Rio and BHP are holding out for higher contract prices in their annual round of negotiations on the grounds that it costs less for the Chinese to ship from Australia to China than it does for their Brazilian competitors shipments from Vale. Although the contracts are based on the FOB port of export, the Australians are trying to take advantage of the lower freight rate they know their clients pay when they buy Australian ore. Both Brazilian and Australian quality is much better than lower grade Chinese domestic or imported Indian iron ores, both of which trade for over $200/ton on the spot market in China. Read more

A friend and colleague of mine recently made a very interesting observation about global trading.

She said to me, “Lisa, if you think of importing as a privilege, it will be a lot easier to deal with the nonsense that our government subjects companies to.” My friend’s comment seems very poignant particularly after reading this article from Purchasing Magazine. The article talks about how U.S. Trade Representative Susan Schwab made some recent comments at the World Economic Forum claiming China was violating WTO rules because “Beijing, the world’s largest producer of many industrial commodities, is driving up costs for companies outside China by limiting its export of such key steel ingredients coke, tin, zinc and rare earths; such semiconductor materials as antimony and silicon; tungsten for mining and construction; and fluorspar, magnesium carbonate and talc.”

When China implemented a number of export reforms (as a response to US political pressure because of the trade imbalance) as we reported back in early January, Chinese exports slowed and according to Schwab, created an oversupply situation in China allowing other Chinese producers (such as ceramics and fiber optic producers) to buy these input materials cheaply. These export reforms were designed to steer Chinese companies away from low value-add manufacturing into higher value-add manufacturing. Good for the Chinese, right?

Well, now for the flip side. As many of you saw, and we have reported last week, there are a number of anti-dumping cases going on now (involving metals) in which the Chinese, among others, have been accused of selling “below fair market.” Voila! — one of these products, mattress innersprings, a value-add product, made of steel of all things, was targeted by a few US innerspring producers. The result is that Chinese mattress innerspring manufacturers are no longer exporting to the US and US mattress manufacturers are forced to buy from the “higher-priced” domestic suppliers. Remind me again how that helps the US economy?

So let’s see if I have this straight. Our government does not want China to limit certain exports used to make steel because that would mean US steel producers would have to pay more for key input materials, putting them at a disadvantage to other global steel producers. But US steel producers, in turn, sell steel wire to the mattress innerspring manufacturers, who can no longer be cost-competitive because Chinese-priced springs are coming in “under market value.” Hence the anti-dumping case. When I look through the list of anti-dumping investigations under review, I see a very mixed list of raw materials and value-add products. What message are we trying to make to the WTO? “We’ll decide which products are in violation of WTO rules”? “We’ll decide which industries in the US require the lower priced input materials”? In the meantime, if you feel you can’t sell competitively in the US, go ahead and file an anti-dumping petition. It’s a very mixed if not downright disconcerting message.

This comment from Spend Matters sums it up nicely: “I’m going to bet that if there is an anti-dumping duty on springs, there won’t be one on mattresses containing those springs. I remember once there was a 200% anti-dumping duty on laptop displays but not on laptops containing those displays. Guess what happened to the US laptop building industry?”

It’s quite a political game, these gyrations between WTO violations and anti-dumping petitions. Actually, it makes me wonder if “Big Steel” has got this administration by the short and — oh, I won’t go there…

–Lisa Reisman

It never ceases to amaze me what a mess politicians can make of business issues. Often the implications have a global impact far outside the limited issue they were trying to address. For example, the Chinese government has been trying to curb exports of basic steel products with repeated changes to the VAT rebates and export tax regime for the last year or more. To their credit, the removal of incentives and application of additional taxes has had a significant effect on reducing exports if not actually curtailing new investment in steel mills ” the stated aim of the exercise. On the plus side, domestic consumers of basic steel products will have seen fewer prices rises in their raw material than they would otherwise and enjoy shorter lead-times compared to overseas consumers.

So far so good, no harm done you may say. Well not quite. In India, the emerging auto parts producers are facing their toughest time in years just when the auto parts market both domestically and regionally is booming. Why? Because of the changes in China. Read more

In a bizarre move driven by anticipated changes in Chinese export taxes, steel imports in the USA surged by nearly 35% as tonnage increased from 1.98m tons in December to 2.66m tons in January, according to the Precision Metalforming Association in Purchasing.com.  That is still some 18% below January 2007, and against a back drop of much reduced imports over the last 6 months as the weak dollar and rising world prices have made imports unattractive. This is bizarre in part because the changes in the 13% export rebate never actually happened at the year end, but also bizarre because much of the surge in process these last few months has been possible because of reduced imports. Read more

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