E.U. flag

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This morning in metals news: the European Parliament recently voted on a resolution for a Carbon Border Adjustment Mechanism; China’s steel output reached nearly 175 million tons in January and February; and the US CRC price has widened the spread with the China CRC price.

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European Parliam passes Carbon Border Adjustment Mechanism

Last week, the European Parliament passed a resolution for a Carbon Border Adjustment Mechanism.

“The European Parliament has sent a clear signal that a workable carbon border measure is of critical importance for the transition of industry towards climate neutrality,” said Axel Eggert, director general of the European Steel Association (EUROFER). “The measure must fill the gap of the carbon cost differential with global competitors and imports instead of replacing or reducing current levels of carbon leakage protection.”

Eggert added straight replacement of free carbon dioxide certificates for a border measure would be “bad policy.”

“Primary steelmaking makes up three-fifths of European production, and such producers would face carbon costs at least twenty times higher than global competitors exporting to the EU,” Eggert added. “This vote shows that the Parliament intends to defend manufacturing and jobs in Europe.”

China churns out 175M tons of crude steel in January, February

The Chinese steel sector produced 175 million tons of steel in January and February, according to National Bureau of Statistics data reported by Reuters.

Average daily output during the aforementioned period reached 2.97 million tons per day. The average came in higher than daily output in December 2020 and January-February 2020, Reuters reported.

US CRC widens gap with China CRC

The US CRC price has become increasingly expensive relative to the China CRC price.

US CRC closed Monday at $1,429 per short ton, or up 8.04% from a month ago.

Meanwhile, China CRC closed at $850 per short ton, for a spread of $579.

In mid-February, the spread stood at $523.

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The US steel sector’s capacity utilization rate posted another incremental gain — this past week rising to 77.7% — as steel production remains steady, but buyers continue to face challenges in securing supply.

Volatility is the name of the game. Do you have a steel buying strategy that can handle the ups and downs?

Steel production reaches 1.76M net tons

Steel production reached 1.76 million net tons for the week ending March 13, the American Iron and Steel Institute reported.

The 77.7% capacity rate during the week marked an increase from 77.4% the previous week.

Meanwhile, for the same week a year ago, steel production reached 1.74 million net tons at a capacity utilization rate of 75.3%.

For the year to date, steel production totaled 17.87 million net tons, at a capacity utilization rate of 76.7%. Output this year is down 6.8% from the same period last year, when capacity utilization reached 79.6%.

By region, steel production for the week ending March 13 totaled:

  • Northeast: 154,000 net tons
  • Great Lakes: 627,000 net tons
  • Midwest: 182,000 net tons
  • Southern: 735,000 net tons
  • Western: 63,000 net tons

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hot rolled steel

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This morning in metals news: U.S. Steel offered a bullish view of the steel market in its first-quarter guidance; the Chinese steelmaking city of Tangshan is moving to tackle pollution; and the tin price has bounced back up over the last two weeks.

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U.S. Steel bullish on steel fundamentals

U.S. Steel released its first-quarter guidance Friday, in which President and CEO David B. Burritt indicated the company is bullish on steel fundamentals.

“Solid market fundamentals, low steel supply chain inventories, continued consumer-driven demand, and pent-up infrastructure demand has us increasingly bullish,” he said.

U.S. Steel expects adjusted net income in the first quarter to come in at $160 million, excluding special items.

The steelmaker has benefited from rising steel prices.

“The Flat-rolled segment is expected to generate significantly higher sequential EBITDA in the first quarter,” the steelmaker said in its guidance. “Higher steel prices over the past several months are increasingly flowing through the segment’s average selling prices in its adjustable and reset annual fixed price contracts. Additionally, the restart of Gary #4 blast furnace has improved operating efficiency.”

Tangshan authorities to address steelmaking pollution

Authorities in the city of Tangshan, a major steelmaking hub, aim to address heavy pollution levels in the northern Chinese city, the South China Morning Post reported.

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scrap steel

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The Raw Steels Monthly Metals Index (MMI) ticked up 2.0% for this month’s index reading, as the pace of steel price rises has started to slow.

The MetalMiner team will be presenting a commodity forecast for copper, aluminum, stainless and carbon steel on Wednesday, March 24, at 10 a.m. CDT:

Steel price gains appear to slow

Steel price rises have continued, much to the chagrin of buyers battling for hard-to-get supply.

However, the pace of the price gains has started to slow.

“The percentage of increase week over week seems to be getting smaller,” said Don Hauser, MetalMiner vice president of business solutions. “This may be a sign the peak is near. Short term, it is likely going to continue to rise, just at a slower pace. Steel prices may remain supported unless/until new production capacity comes back onstream, and some will get added this year.” 

Overall, it’s a difficult time for buyers.

“Unforecasted material is still nearly impossible to find unless it’s by chance,” Hauser added. “Even forecasted material can be difficult to receive on time.”

Capacity utilization hits 77.4%

Speaking of supply and the steel price, steel capacity utilization reached 77.4% for the week ending March 6, the American Iron and Steel Institute reported.

The US steel sector churned out 1.76 million net tons of steel during the week, up 0.3% from the previous week but down 0.3% year over year.

Production for the year to date totaled 16.11 million net tons, or down 7.6% compared with the same time frame the year before. (Notably, this period in 2020 does not yet cover the beginning of lockdown restrictions related to the pandemic.)

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China steel plant

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Many areas, industries (including the China steel sector) and, indeed, societies are under threat from pollution.

In many emerging markets, economic growth has come at the stark price of appalling levels of pollution.

But the Financial Times suggested that in China, home of the largest steel and aluminum industries in the world by far, steel output is under threat from Beijing’s “war on pollution.”

Grab your coffee and hear MetalMiner’s latest forecast for aluminum, copper, stainless and carbon steel on Wednesday, March 24, at 10 a.m. CDT

China steel and the ‘war on pollution’

During the winter season in recent years, power production that runs on coal and polluting industries such as steel and cement, many of which are not only large emitters themselves but also draw electricity from polluting sources of power generation, have been closed in phased programs to reduce air pollution.

But this is much more than those short-term remedies to peak smog levels.

The Financial Times suggests Beijing’s new Five Year Plan focuses on pollution. The plan will require legislation that will result in an unavoidable decline in steel output.

Apparently, local governments have already begun to impose curbs.

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hard hat sitting on US banknotes

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The Construction Monthly Metals Index (MMI) rose by 3.2% this month, as January 2021 construction spending picked up.

March 2021 Construction MMI chart

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Construction spending

US construction spending in January reached a seasonally adjusted annual rate of $1,521.5 billion, the Census Bureau reported this week.

The January rate marked an increase of 1.7% from the previous month. Furthermore, the January rate rose 5.8% compared with January 2020.

Private construction rose 1.7% to a seasonally adjusted annual rate of $1,160.0 billion. Within private construction, residential construction rose 2.5% to $713.0 billion in January. Nonresidential construction ticked up by 0.4% to $447.0 billion.

Meanwhile, US public construction spending rose 1.7% to $361.5 billion. Educational construction dipped 0.1% to $89.9 billion. Highway construction rose 5.8% to $107.8 billion.

ABI moves up but remains low

The Architecture Billings Index (ABI), released monthly by the American Institute of Architects, reached a January reading of 44.9.

The January reading marked an increase from 42.3 the previous month. However, any reading less than 50 indicates a contraction in billings.

Meanwhile, the design contracts index moved up from 47.0 to 48.8.

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US steel mills churned out metal at a steel capacity utilization rate of 77.2% for the week ending Feb. 27, the American Iron and Steel Institute (AISI) reported.

See why technical analysis is a superior forecasting methodology over fundamental analysis and why it matters for your steel buy.

Steel capacity utilization gains

Last week’s rate marked a slight increase from the previous week, when steel capacity utilization reached 77.0%.

Production last week reached 1.75 million net tons.

The production total marked a 7.0% decrease from the same period in the previous year. Furthermore, capacity utilization during the same period in 2020 reached 81.3%.

In addition, production for the week ending Feb. 27, 2021, increased 0.2% from the previous week. Production during the week ending Feb. 20, 2021, reached 1.745 million net tons at a steel capacity utilization rate of 77.0%.

Meanwhile, adjusted year-to-date production through Feb. 27, 2021, totaled 14.36 million net tons at a capacity utilization rate of 76.5%. Output is down 8.4% year over year.

At the same point last year, steel capacity utilization had reached 81.9%.

By region, production during the week ending Feb. 27, 2021, totaled:

  • Northeast: 155,000 net tons
  • Great Lakes: 624,000 net tons
  • Midwest: 181,000 net tons
  • Southern: 715,000 net tons
  • Western: 74,000 net tons

Steel prices

Steel prices continue to rise in the US, as buyers struggle to secure supply (even despite slowly gaining capacity utilization rates).

US hot rolled coil closed Monday at $1,204 per short ton, or up 9.65% from a month ago.

Meanwhile, US cold rolled coil rose 8.87% to $1,375 per short ton.

US hot dipped galvanized is up 7.12% to $1,475 per short ton.

Plate is up 9.77% to $1,079 per short ton.

Volatility is the name of the game. Do you have a steel buying strategy that can handle the ups and downs?

earnings sign

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This morning in metals news: Arconic reported its fourth quarter and full-year 2020 financial results; meanwhile, the Census Bureau reported steel import totals; and, finally, hot rolled coil steel prices continue to rise.

Arconic reports Q4, 2020 financial results

Pittsburgh-based Arconic reported Q4 2020 revenues of $1.5 billion, up 3% from the previous quarter. However, the Q4 total marked a year-over-year decline of 14%.

Weaker aerospace volumes contributed to the decline, the manufacturer said. Growth in the industrial and packaging end markets partially offset the decline.

For the full year, revenues of $5.7 billion marked a 22% year-over-year decline.

The company attributed the slide to COVID-19 impacts and production declines due to delays associated with the Boeing 737 MAX.

“Our fourth quarter results demonstrate a steady climb in revenue since the onset of the pandemic as several indicators point to growing customer demand in many of the markets we serve, particularly in the ground transportation and industrial sectors,” Arconic CEO Tim Myers said.

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hot rolled steel

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The US steel sector capacity utilization rate ticked up to 77.0% for the week ending Feb. 20, the American Iron and Steel Institute (AISI) reported.

Steel capacity utilization gains

US steel production during the week ending Feb. 20 totaled 1.75 million net tons, AISI reported.

The total marked a 7.2% year-over-year decline. Furthermore, the weekly output total dipped 0.1% from the previous week.

Capacity utilization the previous week reached 76.9%. Meanwhile, for the same week in 2020, steel capacity utilization reached 81.3%.

Furthermore, production through Feb. 20, 2021, totaled 12.6 million net tons. Capacity utilization during the period reached 76.1%.

The output total marked an 8.5% year-over-year decline from the same period in 2020, when the rate reached 81.9%.

By region, production for the week ending Feb. 20, 2021, totaled:

  • Northeast: 153,000 net tons
  • Great Lakes: 637,000 net tons
  • Midwest: 183,000 net tons
  • Southern: 700,000 net tons
  • Western: 72,000 net tons

Stop obsessing about the actual forecasted steel price. It’s more important to spot the trend

Raw steel production index continues to rise

The Federal Reserve’s industrial production index for raw steel has been gaining since bottoming out last May.

The index fell to a 2020 low of 65.6795 in May (an index reading of 100 is equivalent to 2012 activity).

raw steel industrial production chart from Federal Reserve Bank of St. Louis

Board of Governors of the Federal Reserve System (US), Industrial Production: Manufacturing: Durable Goods: Raw Steel

In December, the index reached 92.1730.

In Q4 2018, the index reached over 106.4, its highest level since Q4 2011.

Steel price gains

Steel prices have continued to gain, as some end users deal with challenges in securing supply for their operations.

HRC, CRC and HDG prices have continued to increase in recent weeks. The US HRC price reached $1,168/st, up 8.25% from the previous month. Similarly, the CRC price increased 13.25% to $1,342/st. The HDG price jumped 8.0% to 1,458/st. 

Meanwhile, plate rose by 4.23% to $984/st $1,036/st. Wire rod fell 1.26% to $39.27/cwt. 

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list of commodities prices

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Investment banks love a super cycle.

It spurs irrational investment and sucks in unwary investors. Furthermore, it encourages passive funds to up their allocation, even if only by fractions of a percent.

But with some $14 trillion invested in US equities alone, even a modest increase in passive investments into ETFs would reap significant rewards in fees.

As such, it may be not surprising that the big boys — like JP Morgan, as reported in Bloomberg, and Goldman Sachs, as reported in the Financial Times (admittedly focused more on oil) — are calling the start of the next commodities super cycle.

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Commodities super cycle?

On the face of it, they appear to have some foundation.

As a separate post in the Financial Times observes, metals, agricultural and oil commodity indices have risen up to 40% since last July.

In part, this is due to a surge of interest in green-energy projects.

The EU, US and China have all promised to spend big. Hydrogen projects alone could receive €30 billion from the EU.

Copper has rallied to eight-year highs, around $8,375 per ton. The metal is benefiting from strong Chinese demand and the prospects for a more rapid transition to electric vehicles gains momentum. Glencore is quoted as saying world copper demand will double by 2050 and that mine investment is insufficient,

All of that certainly makes for a bullish landscape.

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