This morning in metals news: China’s steel purchases from neighbor India have jumped this year; Japan’s Nippon Steel is wary of China’s steel dominance; and the U.S. trade deficit in goods increased in July.
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China ramps up Indian steel purchases
Despite border tensions earlier this year that led to skirmishes between Chinese and Indian soldiers, China continued to buy record amounts of Indian steel.
Between April and July, Indian steel exports reached their highest level in six years, Reuters reported. Furthermore, China’s share of those exports reached its highest level ever.
China’s steel sector against the world
Speaking of China and steel, the executive vice president of Nippon Steel Corp. expressed concern over the fact that China could be set to further control the global steel market.
“Chinese steelmakers are working hard on product development,” Katsuhiro Miyamoto, executive vice president of Nippon Steel Corp., Bloomberg quoted him as saying. “We must stay ahead of them.”
Rises in imports of rebar, blooms, billets and slabs
“The July change in steel imports based on metric tonnage reflected increases in blooms, billets, and slabs; galvanized hot dipped sheets; and reinforcing bars,” the Census Bureau reported. “Decreases occurred in oil country goods, line pipe, and standard rails. Increases occurred primarily with Brazil.”
Imports from Brazil reached 1.12 million metric tons in July, up from 21,067 metric tons the previous month and 910,976 metric tons in July 2019.
Rebar imports totaled 113,567 metric tons in July, up from 70,447 metric tons in June.
June imports of blooms, billets and slabs reached 72,334 metric tons. In July, that import figure skyrocketed to 1.20 million metric tons. July 2019 imports, however, reached 1.07 million metric tons.
Year-to-date imports remain down
Steel imports for the year to date, however, are down compared to 2019.
For the year to date through June 2020, the U.S. imported 11.2 million metric tons of steel. Meanwhile, for the same period in 2019, the U.S. imported 14.2 million metric tons.
“The largest commodity decrease occurred primarily in oil country goods,” the Census Bureau said. “Increases occurred primarily in tin free steel; light shaped bars; and pipe and tubing.”
Imports of wire rod, meanwhile, fell to 348,614 metric tons from 511,447 metric tons in 2019.
By country, the largest year-to-date decreases in imports came from Russia and Korea. The largest imports increases came from Canada, Mexico, and Turkey.
Falling OCG imports
July imports of oil country goods reached 62,490 metric tons, down from 97,710 metric tons in June.
Through the first half of 2020, imports of oil country goods totaled 704,231 metric tons, down from 1.31 million metric tons in H1 2019.
The decline in oil country goods imports comes as oil prices have languished.
The WTI crude oil price reached $42.62/barrel on Monday, down slightly from the prior week, according to the Energy Information Administration. Meanwhile, the WTI price came in down $11.55/barrel from the price a year ago.
While Chinese demand has continued to show strength to date, demand elsewhere continues to lag behind. MetalMiner’s Maria Rosa Gobitz covered the steel demand picture in further detail in her Raw Steels MMI report Monday.
With volatile steel markets, knowing which strategy to execute and when can make all the difference between saving and losing money. See how MetalMiner looks at different market scenarios.
In the past few months, Chinese HRC and CRC prices have increased over 20%. Meanwhile, their U.S. counterparts have followed the opposite trend. This is due to weaker U.S. demand and stronger-than-expected Chinese demand.
China produced a record amount of crude steel in July as the government boosted infrastructure spending. In addition, the manufacturing sector rebounded as the government lifted lockdown restrictions.
China produced 93.36 million tons of crude steel in July, up 1.9% higher from June. The July total marked a 9.1% increase from July 2019, according to the National Bureau of Statistics of China.
Most of China’s steel production comes from integrated mills. As a result, iron ore prices continue to increase as China’s demand remains strong.
China continued to increase its iron ore imports. In the first half of 2020, China imported 546.91 million tons of iron ore, or a 9.6% year-over-year increase.
Typically, the U.S. market lags the Chinese market by a month or two. Market watchers should monitor if the U.S. steel market to see if it follows a similar price trend to China in the following months.
U.S. steel market
Another factor contributing to the slow recovery of U.S. steel prices may come down to the rapid recovery of mills’ capability utilization rate.
According to the American Iron and Steel Institute (AISI), the U.S. steel sector’s capacity utilization rate rose to 60.4% for the week ending Aug. 8.
While the rate is lower than the same period in 2019, when it reached 79.1%, the rate has increased steadily over the past few weeks despite low steel demand.
Similarly, steel production increased to 1.35 million tons — up from the previous week but still 26.5% below the same period in 2019.
Nonetheless, the rise of capability utilization rate at mills could mean quite the opposite for scrap.
As U.S. steel production and the capability utilization rate continues to increase, so could demand for scrap. Consequently, scrap prices might increase.
Furthermore, EUROFER anticipated consumption might dip lower in the second quarter due to lockdown measures.
The association expects the construction industry to perform better than other sectors. However, that still means construction output is forecast to decline by 5.3% in 2020. However, EUROFER forecast a 4% increase in 2021.
Meanwhile, Junichi Akagi, general manager of JFE Steel in Japan, said steel demand should pick up throughout the third and fourth quarters. However, Akagi does not expect demand to recover to pre-pandemic levels until March 2021.
The Japan Iron and Steel Federation reported orders of steel from automakers, which represent approximately 20% of steel demand, declined by 58% during the second quarter of 2020.
This makes it clear that these large steel-producing countries do not expect to recover their steel demand until early 2021.
Actual metals prices and trends
The Chinese slab price rose 3.2% month over month to $538.87/mt as of Aug. 1. Meanwhile, the Chinese billet price rose 2.5% to $487.27/mt.
Chinese coking coal increased 9.7% to $289.35/mt.
U.S. three-month HRC fell 1.5% to $518/st. U.S. shredded scrap steel fell 8.1% to $238/st.
This past week’s metals news covered everything from silver price movements to the copper price rise’s slowdown to the reimposition of tariffs on some Canadian aluminum.
We also broke down President Donald Trump’s recent proclamation with respect to reimposing the Section 232 tariff on some Canadian aluminum. MetalMiner’s Stuart Burns delved into the concern expressed by Ontario Premier Doug Ford: could Trump target Canadian steel next?
As our readers know well by now, Trump imposed Section 232 tariffs on imported steel and aluminum of 25% and 10%, respectively, in 2018. During the course of negotiations with Canada and Mexico over the United States-Mexico-Canada Agreement (USMCA) — the successor to NAFTA — the U.S. rescinded the tariffs in May 2019.
Now, at least for unalloyed aluminum from Canada, the tariff is back.
Demand collapsed in Q1 during the lockdown but has recovered rapidly in Q2, originally for flat-rolled products as manufacturing for household goods and air conditioning as the high summer temperature approached. Automotive, however, remains somewhat depressed. Long product production has seen a later surge as the market stocks up ahead of an anticipated fall infrastructure demand for construction.
China has not imported significant volumes of scrap since a change in regulations in 2017. Levels have been controlled by import quotas. As such, demand has in part been met by importing semis, like rods, from Malaysia and billets from Russia.
But a relaxation of scrap import quotas is expected to drive a surge in scrap imports. The change could boost domestic electric arc furnace (EAF) and induction furnace (IF) producers.
Southeast Asian scrap users wary
Scrap consumers in the rest of Southeast Asia are watching developments with some degree of trepidation.
Those consumers are expecting Chinese scrap demand could drive up the region’s prices and reduce availability. Worst case, this could encourage resource nationalism. Countries could impose a ban or limits on scrap exports to protect domestic availability or cap price rises.
Ultimately, if scrap prices do rise, rebar and billet prices will likely rise. Excess Chinese production would struggle to find a home regionally, with many countries like Vietnam not allowing rebar imports.
Regional production outside of China is not especially robust.
Japan’s Nippon Steel closed six blast furnaces at the start of the pandemic. However, the company is suffering from poor demand (even during H2 2019). While JFE expects to bring its one closed blast furnace back on stream later this year, Nippon has no plans to do the same before 2021 — underlining the continued depressed nature of the market.
Well-managed supply from Australia and anxiety over availability from pandemic-hit Brazil will likely continue to support iron ore prices. As if to support supply constraints — or, maybe, in retaliation for political discourse with Australia — China imported iron ore from a wider range of sources in Q2 and Q3. The most notable import sources were Canada, Ukraine and India, Reuters reported this week.
Increased scrap imports could soften iron ore demand.
But, in reality, the level of substitution is going to be modest.
Analysts are expecting iron ore prices to remain elevated, coming in at least above $100 per ton for the rest of this year.
This morning in metals news: MetalMiner’s 2021 Forecasting Workshop is tomorrow; steel shipments from U.S. mills dropped 22% in June; and the European Steel Association outlined the impact of the COVID-19 pandemic on the European steel sector.
“The coronavirus pandemic has cut the legs out from under the European steel industry, causing severe damage to the whole sector and its value chains,” said Axel Eggert, director general of the European Steel Association (EUROFER). “The data now available confirm that the downturn that had begun in 2019 has been compounded by the crisis – with the sector now in a state of emergency.”
E.U. steel consumption fell in the first quarter for the fifth consecutive quarter, dropping 12% year over year.
Following President Donald Trump’s reimposition of 10% import tariffs on Canadian aluminum, the U.S.’s northern neighbor is now sweating the possible reimposition of steel tariffs. The U.S. imposed the Section 232 tariffs in 2018. Eventually, the U.S. lifted them following the successful agreement of the United States-Mexico-Canada Agreement (USMCA).
“I hear that they’re going to do tariffs on our steel industry as well,” Ontario Premier Doug Ford is quoted in Bloomberg saying during a press conference in Toronto last week. “There are 40 categories of steel, they’re going to go and tack on a certain percentage — I’m not too sure what percentage it is — onto our steel.”
It is likely the uncertainty of the situation is creating panic north of the border.
Steel mills struggle with low capacity utilization
Capacity utilization on both sides of the border is woefully low.
Producers of steel are suffering from the ongoing pandemic while trying to make up for the impact of lockdowns earlier in the year.
According to the American Iron & Steel Institute, domestic raw steel production was 1.33 million net tons for the week ending Aug. 1. The capability utilization rate reached 59.3% compared to 79.3% in the same period last year. Meanwhile, the rate had reached 58.9% the week prior.
The justification for the reimposition of the aluminum tariffs was the U.S. has suffered a surge in imports of the light metal. Canada, meanwhile, vehemently denies that argument. Canada says imports remain at long-term historical norms.
Imports of steel as a percentage of total imports have risen this year from Canada, according to U.S. import data. June’s is up from 20.2% of total imports last year to 26.6% this year. However, it should be noted that imports last year faced a 25% import tariff. However, the percentage is up sharply from just 16.3% of the total in May.
Comparing month by month holds hazards, as volumes vary. A smoothed average is better and comparing several years is better still. The imposition of tariffs previously would likely have impacted Canadian-sourced metal to some extent.
Canada will no doubt be hoping Trump’s latest move is aimed at domestic politics (in view of the upcoming elections).
But regardless of the election outcome, the move has shaken producers and consumers on both sides of the border. Many of those producers and consumers had assumed the USMCA had settled North American trade policy for the foreseeable future.
The one certainty this year would appear to be volatility and uncertainty.