Steel

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This morning in metals news, the chief executive of Austria’s Voestalpine says Europe’s steel industry has excess capacity, copper picked up as the dollar’s gains paused and automotive aluminum use is picking up according to one survey.

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Voestalpine Chief Executive Says Europe Must Address Steel Overcapacity

According to the chief executive of Voestalpine, Europe should prepare for potential factory closures on account of a steel surplus of about 20%, the Financial Times reported.

According to Wolfgang Eder, Europe will be vulnerable to cheap imports. He said the European steel sector should shift its focus from commodity metal to higher-value products, according to the report.

Copper Price Rises

Copper rose as the dollar steadied on the heels of previous gains, Reuters reported.

LME copper hits $7,094.50 per ton at midday, according to the report.

Aluminum Autos

The aluminum sector is becoming more influential in the automotive industry, according to one survey.

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According to a report in Automotive News, a Ducker Worldwide survey said aluminum is “the fastest growing automotive material over competing materials and is entering its most unprecedented growth phase since we’ve been tracking the shifting mix of automotive materials.”

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There’s a feel-good story emerging out of India vis-a-vis the steel sector. A recent policy document showed a rise in steel exports in 2017, while a freshly released World Steel Association (WSA) report recorded a growth in crude steel production last year.

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The Economic Survey of India 2017-18, a document released just prior to the union budget in India, has said a mix of policy inputs for local steel, the rise in global steel prices and a slew of efforts by the Indian government to protect the domestic steel market from cheap imports had all helped in raising steel exports from India to an “unprecedented” 53% rise during the April-December 2017, during which output rose to 7.6 million tons (MT).

Local consumption itself rose 5.2% during that period to 64.9 MT. Sale of finished steel rose 5.6% to 79.3 MT during the same period, largely because of a boost from India’s core infrastructure sector.

According to the WSA report, India’s crude steel production grew by 6.2% to 101.4 MT in 2017 compared to 95.5 MT in the previous year. While China remained the world leader by producing 831.7 MT in 2017 (up 5.7% from 786.9 MT the previous year), Japan took the second spot, but witnessed a decline in steel output by 0.1% to 104.7 MT in 2017 (from 104.8 MT in 2016).

The WSA report noted world steel production touched 1,691.2 MT for 2017, up by 5.3% compared to the 2016 output of 1,606.3 MT, which sector analysts say is good news.

Specifically, India overtook the U.S. to become the world’s third-largest steel producer.

Back up a few years and India was looking at surplus steel production capacity and the flooding of the market with cheap steel from countries such as China and South Korea.

After some loud complaints by local steel bodies and producers, the Indian government raised customs duty and imposed anti-dumping duty. The Minimum Import Price (MIP) was introduced in February 2016, and all these measures had ensured the recovery by domestic producers, the Economic Survey said.

In between, somewhere in 2016-17, exports started dipping again, and the government then notified anti-dumping duties and countervailing duties on various steel products in February 2017. This included imposition of anti-dumping duties on imports of seamless tubes, pipes and hollow profiles of iron, alloy or non-alloy steel originating and exported from China. Similar duties were slapped on hot-rolled coils (HRC), HR plates, cold-rolled (CR) products, wire rods and color coated steel. The government also levied countervailing duty on imports of stainless steel cold rolled flat products of all grades/series from China, Korea, the European Union, South Africa, Taiwan, Thailand and the U.S.

In 2017, the Indian government rolled out a new steel policy, as reported by MetalMiner.

To add to this, preference to locally manufactured select iron and steel products has been enforced since May 2017. These measures have helped keep a check on imports, which went up by only 10.9% in April-December 2017 to 6.1 MT, the Economic Survey said.

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India’s domestic consumption of steel per capita is around 65 kg, compared to global average of 235 kg — a worrisome factor in an otherwise positive growth story for Indian steel. India, however, is pushing for an increase in per capita steel consumption to 160 kg by 2030.

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Nucor Corporation announced its 4Q and 2017 full-year earnings during its quarterly earnings call Tuesday afternoon.

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For the fourth quarter of 2017, Nucor reported consolidated net earnings of $383.9 million, or $1.20 per diluted share, compared with net earnings of $254.9 million ($0.79 per diluted share) for the third quarter of 2017 and $159.6 million ($0.50 per diluted share) for the fourth quarter of 2016.

For the year as a whole, Nucor reported consolidated net earnings of $1.32 billion, or $4.10 per diluted share, for fiscal 2017 compared to $796.3 million, or $2.48 per diluted share for fiscal 2016.

Chief Financial Officer Jim Frias said Nucor achieved “significantly better than expected” results in its sheet and bar mills during December.

“The Nucor team faced a very challenging marketplace in 2017,” Frias said. “Finished steel imports increased 12% from 2016, driven by unacceptably high levels of illegal trade.”

Despite rising imports and a sluggish non-residential construction market, Nucor delivered its highest earnings since 2008, he added.

“We believe our 2017 performance provides strong evidence that Nucor’s strategy for profitable growth is working,” Frias said.

In the automotive realm, Nucor increased its automotive market shipments in 2017 by 7% year over year, up to 1.5 million tons of sheet and engineered bar products.

Looking ahead, Frias said 1Q 2018 earnings are expected to increase compared to the fourth quarter of 2017 “exclusive of the benefit related to tax reform.” Excluding that net benefit of about $175 million, CEO and President John Ferriola said the company’s 2017 earnings more than doubled its annual average earnings of $483 million over the previous seven years.

Markets for Nucor products like beams, rebar, merchant bar and plates — which accounted for about 45% of Nucor’s total steelmaking capacity — were challenging this past year, Ferriola added.

Ferriola also touched on import levels, which he said remained “a very serious problem” last year.  Finished steel imports occupied an approximately 27% share of the U.S. market, according to the American Iron and Steel Institute’s most recent imports report. The import market share was approximately 22% for December.

In addition to those market headwinds, unplanned outages at Nucor’s Louisiana DRI facility also impacted operations, leading to the plant’s production hitting less than half of its capacity in 2017, Ferriola said.

The firm announced two new projects this past November.

The company plans to build a new rebar micro mill in Sedalia, Missouri, which represents at least $250 million in new investments, according to a Nucor release. The mill, which has an expected startup of late 2019, will boast an approximate capacity of 350,000 tons, Ferriola said.

Given the distance that rebar has to travel to reach the Upper Midwest and Plains markets, the Sedalia mill’s location — about 90 miles east of Kansas City — will give Nucor a “sustained cost advantage” over other domestic steel producers, according to Ferriola.

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In addition, the company announced plans to build a full-range merchant bar quality mill at its existing steel mill in Bourbonnais, Illinois. According to the release, the mill — expected to cost $180 million and also with an expected startup in late 2019 — will have an annual capacity of approximately 500,000 tons.

On the policy front, Ferriola said — seven hours before President Trump’s first State of the Union address — the company hopes to get some good news regarding a “long overdue” infrastructure plan.

“When you look at infrastructure and you look at Nucor and the breadth of our products, when we get that badly needed infrastructure plan — and we’re going to get it someday because we need it someday — there’s no company that is positioned better than Nucor to participate in that infrastructure build,” Ferriola said. “We won’t see the benefits right away, but when they do flow down to us we will be positioned in our industry better than most to take advantage of that infrastructure build.”

The World Steel Association released its 2017 annual crude steel report on Wednesday, which showed steel output increases in almost every part of the world last year.

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According to the report, the 1,691.2 million tons (MT) produced last year marked a 5.3% increase from the previous year. Crude steel output increased everywhere except the Commonwealth of Independent States (CIS), the region including Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Uzbekistan, and associate members Uzbekistan and Ukraine.

Source: World Steel Association

Chinese Share of Global Output Rises

Annual production for Asia was 1,162.5 MT of crude steel in 2017, an increase of 5.4% compared to 2016.

China’s crude steel production hit 831.7 MT, up by 5.7% on 2016. In addition, China’s share of world crude steel production increased from 49.0% in 2016 to 49.2% in 2017, according to the report.

Japan produced 104.7 MT in 2017, a 0.1% drop compared to 2016, while India’s crude steel production was 101.4 MT, up by 6.2% on 2016. South Korea produced 71.1 MT of crude steel in 2017, an increase of 3.7% compared to 2016.

U.S. Steel Output Jumps 4.0%

Meanwhile, in North America, total crude steel production was up 4.8% to 116.0 MT. The U.S. alone produced 81.6 MT, good for a 4.0% increase from the previous year.

In South America, crude steel output rose 8.7% to 43.7 MT, paced by Brazil’s 9.9% increase to 34.3 MT.

China Leads the Way, but Capacity Closures Will Tighten Supply

Not surprisingly, China once again dominated the global stage in steel production, churning out just under half of the world’s supply.

China led the way with its 831.7 MT output. However, capacity cuts will likely see that number drop going forward. The state-led capacity closures dating back to November aim to reduce pollution in the country.

In fact, according to a poll of analysts responding to a Financial Times survey, Chinese steel output is expected to grow by just 0.6% this year — a far cry from the 5.7% increase from 2016 to 2017. Some have expressed concerns that the capacity closures will simply be canceled out by new capacity starts — on paper, though, the Chinese government’s stated capacity closure agenda will do much toward bringing global output numbers down.

In that vein, China’s average daily steel output fell by 1.9% in December, Reuters reported last week.

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Rounding out the rest of the top 10, in descending order, were:

  • Japan: 104.7 MT
  • India: 101.4 MT
  • U.S.: 81.6 MT
  • Russia: 71.3 MT
  • South Korea: 71.1 MT
  • Germany: 43.6 MT
  • Turkey: 37.5 MT
  • Brazil: 34.4 MT
  • Italy: 24.0 MT

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This morning in metals news, Kobe Steel‘s personnel shake-up constitutes one attempt to put distance between the company and its quality data falsification scandal, the chairman of the Japan Iron and Steel Federation said China’s steel output is under control despite record production in 2017 and the fate of the 24-year-old North American Free Trade Agreement (NAFTA) is up in the air.

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Embattled Kobe Steel Shakes Up Personnel

Japan’s Kobe Steel, mired in a quality data falsification scandal, is shaking up its personnel in an effort to rehabilitate its reputation.

According to the Nikkei Asian Review, among other changes the firm installed its former head of steel marketing, Yukimasa Miyashita, as the senior managing executive officer responsible for aluminum and copper, replacing an official dismissed last December.

In good news for the firm, Toyota Motor last week said it had inspected vehicles that used products that had been linked to the scandal and confirmed that they meet Toyota’s internal quality standards, the Nikkei Asian Review reported.

Chinese Steel Output ‘Under Control’

Kosei Shindo, the chairman of the Japan Iron and Steel Federation, said that despite record Chinese steel output last year, the country’s output was under control, Reuters reported.

Shindo cited strong local demand and China’s closure of illegal capacity as the basis for his outlook, Reuters reported.

NAFTA Hangs in the Balance

With five rounds of NAFTA renegotiation talks in the books already, negotiating teams from the U.S., Mexico and Canada head into the sixth round this week in Montreal with increased pessimism regarding the trade deal’s survival.

Senior officials will meet for the sixth and final round of talks beginning Tuesday, Reuters reported, as the U.S. continues to push policy items like stricter automotive rules of origin and a potential sunset clause (at which Canada and Mexico have balked).

In another public threat to the deal, President Donald Trump last Thursday tweeted that “NAFTA is a bad joke!” The tweet was the latest of a series of public rebukes of the deal from the president throughout the course of the talks.

According to the report, Canadian officials are becoming increasingly pessimistic that a deal can be reached, seemingly resigned to the idea that Trump will withdraw from the deal.

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“There is still a shred of optimism, but I have to say the consensus around the room … felt like it’s not if, it’s when he’s going to pull the plug,” said Rona Ambrose, a council member and former Canadian minister, to CTV television, according to the Reuters report.

Steel price momentum appears significantly stronger with the start of the year. Steel price momentum shifted in December, showing stronger upward movement.

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Despite the momentum, MetalMiner remains cautious about steel prices.

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

The U.S. Department of Commerce’s Section 232 outcome might also add some support to steel prices this month and until the president makes a final decision. Secretary of Commerce Wilbur Ross released the report to President Trump on Jan. 11. The president has 90 days as of receipt of the report to take action. The contents of the report have not been divulged.

Plate Prices Move Up

Domestic plate prices increased again this week. Prices increased at the very end of 2017; plate momentum seems to have recovered from its previous downtrend.

Source: MetalMiner data from MetalMiner IndX(™)

Plate prices tend to abruptly change price direction. Will this new set of prices signal a continuous uptrend movement for the steel industry? Steel price performance in Q1 will provide buying organizations with clues and road signals.

What About Chinese Steel Prices?

Chinese steel prices, however, currently trade lower than they did in December.

Contrary to U.S. steel prices, Chinese steel prices have held in an uptrend longer than U.S. steel prices. Therefore, we would expect some sideways movements.

Chinese capacity closures might offer additional support to steel prices this year. However, the Chinese government will maintain the current steel output and ensure steel quality meets the required standards.

Last week, the Ministry of Industry and Information Technology stated that China will have stricter rules to build new steel production capacity. Just up to one ton of new capacity will be built for each 1.25 tons of old capacity closed in environmentally sensitive regions. This measure will start this year, which may add support to steel prices.

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What This Means for Industrial Buyers

As domestic steel price dynamics showed strong upward momentum this month, buying organizations may want to closely understand price movements to decide when to buy some volume. Despite slowing Chinese momentum from the previous quarter, prices still remain strong. Buying organizations can expect some additional upward price movement this month.

For specific industrial buying strategies, take a free trial now to our Monthly Metal Buying Outlook. In addition, our February Monthly Outlook will include a detailed analysis of the Section 232 outcome.

This morning in metals news, the metals supply situation is complicated, Russian steel producer NLMK‘s output rose 3% last year and copper dropped the most it had in almost six weeks.

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What is the Supply Situation?

According to Reuters, stocks of metals in LME industrial warehouses fell by 40% last year, meaning tighter supply and a subsequent rise in prices — at least, that’s the conventional wisdom.

But when it comes to the global picture, it isn’t that simple. According to Reuters, some smaller exchanges aren’t experiencing such drops in inventory, which balances out the supply picture.

For example, warehouses monitored by the Shanghai Futures Exchange (ShFE) went up, as did CME Group warehouse inventories in the U.S.

As such, according to the report, only lead and zinc really fit the bill vis-a-vis being tagged with the tight supply label.

NLMK Sees Output Rise in 2017

The Russian steel producer said its 2017 production rose 3% last year, according to Reuters.

NLMK’s crude steel output amounted to 17.1 million tons last year.

Copper Posts Biggest Drop Since Early December

Is the rally coming to an end for copper? It’s a little early to make that declaration, but according to Bloomberg the metal posted its biggest drop Tuesday since Dec. 5.

Copper dropped 1.8% on Tuesday to $7,078 per ton, according to the report.

The metal, often dubbed “Dr. Copper” for its ability to serve as an indicator of overall economic health, had a strong December. However, 2018 hasn’t been as kind.

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LME copper closed Dec. 1 at $6,733 and closed Dec. 29 at $7,156.50 (a rise of 6.3%). In the new year, however, the metal has tracked back, hitting $7,022 as of Wednesday morning, according to MetalMiner IndX data.

The above headline is true, assuming the U.S.’s avowed aim is the health and future of the American steel industry and its workers.

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No one would dispute the idea that the world has too much steelmaking capacity. Many emerging markets and all mature markets are in agreement that excess steelmaking capacity depresses global prices and begats a beggar-thy-neighbor attitude to world trade.

Even taking the elephant in the room out of the assessment, The Economist estimates, by excluding China, global capacity use fell from 86% in 2004 to 69% in 2016, underlining how severe and widespread the problem is.

Source: The Economist

Recent cutbacks in China, recent research from Bank of America Merrill Lynch suggests, mean it is on track to use a full 88% of its capacity in 2018. Steel prices have rallied, mostly due to broad-based rising global growth.

While there are no guarantees that older, less environmentally friendly steel plants closed in the last 12 months will not be replaced by new, more efficient and less-polluting steel plants in the future, recent directives from Beijing suggest it is applying pressure to state governments to limit the permitting of new steel mills.

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This morning in metals news, two new vehicles made mostly with steel represent a victory for the steel industry, iron ore prices are down and the U.S. International Trade Commission (ITC) voted to continue its investigation into common alloy aluminum sheet from China.

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New Ram Pickup, Chevy Silverado Made with Steel

As the steel industry battles to remain the dominant material in automotive construction, the news of two new models constitutes a win for the industry.

Fiat Chrysler‘s new Ram pickup and General Motors‘ new Chevrolet Silverado truck are made mostly with steel, Reuters reported. The announcements represent a big win for steel, which is seeing increasing competition from aluminum within the automotive industry.

As Reuters reported, in late 2014 Ford launched the all-aluminum body F-150. While the versatile metal offered improved fuel economy, it comes at a premium to steel. The interplay between steel and aluminum vis-a-vis automobile construction is something that will need to continue to be monitored going forward.

Iron Ore Prices Drop

As Chinese rebar steel futures fell, so too did prices of iron ore in the face of flagging demand, Reuters reported.

Iron ore on the Dalian Commodity Exchange dropped 2.3% to 535 yuan per ton, according to the report.

ITC Continues Aluminum Sheet Investigation

The U.S. ITC announced Friday that it voted to continue its investigation of common alloy aluminum sheet from China.

“The United States International Trade Commission (USITC) today determined that there is a reasonable indication that a U.S. industry is materially injured by reason of imports of common alloy aluminum sheet from China that are allegedly subsidized and sold in the United States at less than fair value,” the ITC release covering the announcement states.

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Now, a preliminary countervailing duty determination is due Feb. 1 from the Department of Commerce.

After a couple of self-imposed deadlines blown by and a lot of waiting, the next step in the Section 232 process has finally arrived.

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Thursday evening the Department of Commerce announced Secretary of Commerce Wilbur Ross had completed his Setion 232 steel report and sent it on to President Donald Trump. Under the statutory guidelines of Section 232 (derived from the Trade Expansion Act of 1962), Trump has 90 days to respond to the recommendations and act (or not act).

As a result of the investigation, the president could call for tariffs, quotas, or a hybrid tariff-quota solution in an effort to help domestic steelmakers dealing with rising imports.

The department’s announcement did not indicate what the contents of the report were. White House Deputy Press Secretary Lindsay Walters said the president would announce his decision “at the appropriate time,” CNBC reported.

The Section 232 probes into steel and aluminum imports were launched last April. The purpose of the investigation is to determine whether or not the imports pose a threat to the country’s national security. The last Section 232 investigation came in 2001, when it was that determined that imports of iron ore and semi-finished steel did not pose a threat to national security.

Unsurprisingly, reactions rolled in Thursday evening from the metals industry.

“The steel industry welcomes the news that the Secretary of Commerce has formally submitted his report to the president in the Section 232 investigation into the impact of steel imports on the national security,” said Thomas J. Gibson, president and CEO of the American Iron and Steel Institute (AISI), in a release. “We are confident that we have made the case that the repeated surges in steel imports in recent years threaten to impair our national security and we look forward to the president’s decision on the appropriate actions to address this critical situation.”

Scott Paul, president of the Alliance for American Manufacturing (AAM), expressed hope that Trump would not need 90 days to bring the investigation to its conclusion.

“Final resolution of the Section 232 case doesn’t need to take 90 days; we’ve seen more than six months of delays already,” Paul said in a release. “Let’s get this done by the end of January.”

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A rise in imports has been a consistent talking for Trump, with China in particular coming in for much criticism from the president and the domestic industry.

According to a recent AISI report, U.S. steel imports rose by 15.5% in 2017. The estimated finished steel import market share in 2017 checked in at 27% (22% for December 2017 alone).