Steel

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The World Steel Association released its March global crude steel production report, detailing global crude steel production rose 4.9% year over year.

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March 2019 production reached 155.0 million tons. For the first three months of the year, production reached 444.1 million tons, up 4.5% compared with the first quarter of 2018.

Asia produced 312.9 million tons of crude steel, marking a 7.0% increase over the first quarter of 2018. Elsewhere, E.U. production reached 42.3 million tons of crude steel in the first quarter of 2019, marking a 2.0% decrease. North American crude steel production in Q1 reached 30.7 million tons, up 4.0% year over year.

China’s crude steel production for March 2019 hit 80.3 million tons, up 10.0% year over year. China’s program of winter production cuts ran from November through March, but Reuters earlier this month reported the country’s top two steelmaking cities, Tangshan and Handan, announced they would extend the production cuts.

India produced 9.4 million tons of crude steel in March 2019, falling 1.0% from March 2018. Japan’s production hit 9.1 million tons, holding flat from March 2018. South Korea’s production rose 2.8% to 6.3 million tons.

In Europe, Italy’s crude steel production fell 0.3% to 2.3 million tons, while France’s rose 2.3% to 1.4 million tons. Spain also produced 1.4 million tons, good for an increase of 5.9%.

The U.S. produced 7.8 million tons of crude steel in March 2019, marking a 5.7% year-over-year increase. According to the American Iron and Steel Institute (AISI), the U.S.’s adjusted year-to-date production through April 20 hit 29.95 million net tons, at a capability utilization rate of 81.9%. Production during that aforementioned period was up 6.9% from the equivalent period in 2018, during which the capability utilization rate was 76.4%.

Ukraine’s production spiked 15%, up to 2.0 million tons, while Brazil’s fell 8.6% to 2.8 million tons.

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Turkey’s production continued to decline, falling 11.7% in March down to 3.0 million tons. Turkey has struggled with shrinking export markets in the face of the U.S.’s Section 232 tariffs and the E.U.’s steel safeguard measures passed earlier this year.

According to a release on the China Iron and Steel Association website, the president of the Turkish Steel Exporters’ Association Adnan Aslan recently said Turkish steel exports could decline to 15-16 million metric tons in 2019, down from 21.4 million metric tons in 2018. In addition, Aslan highlighted the importance of tapping into new markets for the Turkish steel sector, including Southeast Asia, West Africa and Latin America.

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This morning in metals news, the Republic of Congo made its first export of iron ore, Korean steelmaker POSCO says elevated iron ore prices will put a damper on steel margins this year and global aluminum production in March hit 5.4 million metric tons.

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Republic of Congo Makes First Iron Ore Export

The Republic of Congo last week made its first shipment of iron ore, S&P Global Platts reported.

The shipment of 22,000 metric tons of iron ore is headed for a Chinese steel mill, according to the report.

Rising Iron Ore Prices to Impact Steel Margins

The price of the steelmaking material iron ore has received several supply-side boosts of late, particularly related to events in Brazil at Vale’s operations and from recent tropical cyclones in Australia.

As such, Korean steelmaker POSCO expects elevated iron ore and coking coal prices to hamper steel margins this year, the Australian Financial Review reported. According to the report, POSCO expects iron ore to trade between $82-$87 per ton for the remainder of the financial year.

March Aluminum Production

The International Aluminum Institute released monthly aluminum production figures Tuesday, showing global production in March hit 5.4 million metric tons.

The March total marked an increase from the 4.9 million metric tons in January, but was down on a daily average basis.

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Production in China hit 3.1 million metric tons, up from 2.8 million metric tons in February.

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This morning in metals news, the Chinese government’s decided to continue stimulus measures offers a boost to steel and iron ore, India could move past the U.S. in steel use and Tokyo Steel holds prices steady for a fifth consecutive month.

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China to Continue Economic Support

A recent announcement by the Chinese government offered support to steel and iron ore prices.

In fact, Reuters reported China’s steel and iron ore futures rose nearly 3% Monday after the government announced it will continue policy-based efforts to boost the economy.

India to Surpass U.S. in Steel Use

This past year, India moved past Japan into the No. 2 spot in terms of steel production, behind only China in that department.

Now, a study says India will become the second-largest steel using nation, too, bypassing the U.S. on the list, the Business Standard reported.

Tokyo Steel Prices Hold Steady

For the fifth month in a row, Japanese steelmaker Tokyo Steel Manufacturing Co. Ltd. has decided to keep its steel prices steady, Reuters reported.

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“Local flow of steel products have slowed as a shortage of some materials such as bolts caused delays in some construction projects, while higher imports also helped boost local steel inventories,” Tokyo Steel Managing Director Kiyoshi Imamura was quoted as saying.

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Amidst the trade tension that exists between the United States and India, now comes a report that India’s steel exports to the U.S. last year fell by a whopping 49%.

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On the other hand, exports of Indian aluminum went up by 58%.

The report by the independent Congressional Research Service (CRS), which said the value of Indian steel exports to U.S. was down to U.S. $372 million but aluminum was up to $221 million.

The U.S. had imported steel and aluminum products totaling $29.5 billion and $17.6 billion, respectively, in 2018.

Quoting from the CRS report, the Hindu Business Line said the countries to see the largest declines in the value of their steel exports to the U.S. were:

  • South Korea (-$430 million, -15%)
  • Turkey (-$413 million, -35%)
  • India (-$372 million, -49%)

There were major increases in imports from the European Union (+$567 million, +22%), Mexico (+$508 million, +20%) and Canada (+$404 million, +19%).

According to the CSR, the countries seeing the largest declines in their export totals to the U.S. were:

  • China (-$729 million, -40%)
  • Russia (-$676 million, -42%)
  • Canada (-$294 million, – 4%)

Major increases were from:

  • the E.U. (+$ 395 million,+9%)
  • India (+$ 221 million,+58%)
  • Oman (+$186 million, +200%).

Last year, U.S. President Donald Trump decided to impose blanket tariffs on steel and aluminum imports, which applied to India, as well as other countries (such as China). India then proposed retaliatory tariffs against U.S. agricultural products, including apples and lentils, which experts believed would have had an adverse impact on American exports worth nearly U.S. $900 million.

However, India has continued to defer with respect to this option.

The U.S. president had given temporary exemption to several countries from the tariffs pending negotiations. Later, permanent tariff exemptions in exchange for quantitative limitations on U.S. imports were announced covering steel for Brazil and South Korea, and both steel and aluminum for Argentina.

The latest CRS report pointed out that one of the U.S.’s major concerns was overcapacity in steel and aluminum production led by China.

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The U.S. had imposed extensive anti-dumping and countervailing duties on Chinese steel imports to counter the latter’s unfair trade practices, but experts believe the size of Chinese production continues to depress prices globally, according to the CRS report.

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This morning in metals news, U.S. imports of steel dropped in February after an import-heavy January, Alcoa released its first-quarter financial results and flat-rolled aluminum producer Novelis is looking to secure exemptions on its pending requests related to tariffs covering Canadian aluminum.

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Steel Imports Fall Back in February

Steel import market share for the U.S. hit 20% in February, down from 25% in January, according to an American Iron and Steel Institute (AISI) report citing Census Bureau data.

The U.S. imported 2.43 million net tons (NT) of steel in February 2019 (down 30.1% from January).

Meanwhile, for the first two months of the year, imports reached a combined total of 5.91 million NT, up 10.2% from the January-February 2018 period.

Alcoa Reports Q1 Financial Results

Pittsburgh-based aluminum producer Alcoa unveiled its Q1 financial results this week, reporting revenue of $3.09 billion in the quarter (up from $2.72 billion in Q1 2018 but down from $3.34 billion in Q4 2018).

“We improved our operations in the first quarter, even as alumina and aluminum prices weakened,” Alcoa President and CEO Roy Harvey said. “Our Bauxite and Alumina segments increased their production rates, and we took steps last quarter to restructure our Aluminum portfolio.”

The firm reported adjusted EBITDA (excluding special items) of $732 million, down from $770 million the previous quarter and up from $467 million in Q1 2018.

Alcoa expects the 2019 global aluminum deficit to range between 1.5 million and 1.9 million metric tons, marking a slide from the previous quarter’s full-year estimate of between 1.7 million and 2.1 million metric tons.

Novelis Seeks Canadian Aluminum Tariff Exemption

The U.S.’s Section 232 tariffs on imported steel and aluminum remain in effect, including against NAFTA partners Canada and Mexico. The countries’ executives signed a new trade deal — the United States-Mexico-Canada Agreement (USMCA) — to replace NAFTA late last year, but the deal still must be ratified by each country’s legislature.

So, the tariffs continue to remain in place for U.S. imports of steel and aluminum from its neighbor to the north.

U.S. flat-rolled aluminum product maker Novelis is hoping to secure additional exemptions on Canadian aluminum, WRVO reported, as it argues the tariffs are negatively impacting its Oswego plant in western New York State. The report notes Novelis has already received exemptions for a large number of other products, but has approximately 250 requests pending with the Department of Commerce and Customs and Border Protection.

In other Novelis news, the firm announced automaker Toyota had selected it to supply aluminum for the 2019 RAV4.

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According to a Novelis release, Novelis aluminum would be featured in the vehicle’s hood, fenders and lift gate, yielding a vehicle that is 4% lighter than previous models.

The Chinese government frequently mandates steel production cuts, especially for environmental reasons. But the cuts have also aimed to cut production volume in support of maintaining higher steel prices and, therefore, a healthier domestic industry.

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A recent goal of cutting 150 million metric tons of steel production capacity by 2020 was achieved by the end of 2018, according to the Chinese government. (By the way, no such purely production-focused reduction goal exists for 2019).

According to a recent Reuters article, on the other hand, in June 2018, China’s State Council banned new capacity development for steel, among so2me other primary commodity products, in some key geographic areas, such as Beijing-Tianjin-Hebei and the Yantze River Delta Regions.

The Chinese government mandated that blast furnace steel operations in Tangshan and Handan, China’s largest steelmaking cities, continue production cuts, but at a reduced rate of 20% of total capacity for April-June (compared to the 30% capacity reduction ordered for the November-March period).

These cuts target improvement in air quality by reducing the concentration of PM2.5 particulate matter by a minimum of 5% this year, when compared to 2018. Some production facilities must even leave the region as the government seeks to improve the quality of life in pollution-affected areas, such as Beijing, which is surrounded by Hebei province (the location of multiple steelmaking cities, including Tangshan and Handan).

When prices rise, however, these mandates become more difficult to enforce.

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According to Reuters, spot 62% grade iron ore for delivery to China recently rose 1.6% to $93 per metric ton and the most-traded May 2019 iron ore contract on the Dalian Commodity Exchange soared as much as 4.1% to 710.5 yuan ($106) per ton — the highest for the Asian benchmark since 2013.

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Such robust price performance was not a one-day spike, but was reflected across the week as the contract gained nearly 10% during the first week of April on a combination of strong steel mill buying and concerns over constrained supply from both Australia and Brazil.

Nor was the bullish sentiment confined to iron ore, as Reuters reported coking coal on Monday rose 1% to 1,258.5 yuan ($187.29) a ton, and coke rose 1.4% to 2,048.5 yuan ($304.86).

Demand is at its seasonal peak as the weather warms in China and construction work begins in earnest, pushing up steel futures by more than 3% in early April. According to Reuters, the most-active construction steel rebar contract on the Shanghai Futures Exchange recently rose as much as 3.6% to 3,710 yuan ($552) a ton, its highest since Aug. 22, while hot-rolled coil jumped as much as 3.4% to 3,955 yuan a ton ($588).

Such performance suggests the steel market is roaring in China, fueled by another infrastructure spending spree, but the reality is something different.

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The Raw Steels Monthly Metals Index (MMI) fell by one point this month to 81, a 1.2% decline from the previous month’s MMI value.

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Price weakness in the index came from the U.S. HRC 3-month futures contract, with a 6.3% decline in price this month, while Chinese Dalian coking coal prices declined by 7.2%. The declining prices pulled the index down, in spite of the 16.2% increase in Korean scrap steel prices.

U.S.steel prices generally trended gently upward after stabilizing earlier in the year. CRC prices increased by around 3% on a month-on-month basis, while HDG increased by nearly 3%. HRC prices edged up by just over 1% while plate prices held steady month on month.

Source: MetalMiner data from MetalMiner IndX(™)

Overall, prices stayed firm, in line with seasonal supply and demand factors at work in construction, in particular. Generally stronger-than-expected industrial performance in both the U.S. and China provided price strength.

Similarly, and in line with more positive economic data than generally anticipated, Chinese steel prices increased so far this year, leading the U.S. price increase (as generally expected by technical analysis of steel prices since Chinese prices tend to move first).

Source: MetalMiner data from MetalMiner IndX(™)

Based on a basic visual comparison of Chinese steel prices with the China Manufacturing Purchasing Managers Index (PMI) trendline, as the PMI crosses the threshold over 50, steel prices tend to increase while they tended to fall during months of contractionary sub-50 readings. As we can see the PMI trending upward, we can expect steel prices to rise.

Source: Analysis of data from MetalMiner IndX(™), Yahoo.com and Investing.com

On the other hand, the comparison of trendlines between steel prices and China’s FXI, a large-cap ETF index, shows a relationship that appears weaker, with values moving in opposite directions at times (although still typically following a similar movement).

Given that China’s PMI reading increased recently, this indicates the potential for steel prices to show strength.

A Comparison of U.S. and Chinese Steel Prices

The spread between U.S. HRC and China HRC prices flattened out for the last couple readings after falling for a few months now, with a price differential in early April of $181/st.

Source: MetalMiner data from MetalMiner IndX(™)

This month, U.S. CRC prices outpaced China CRC prices. The spread once again trended slightly upward between the two after trending more or less downward since July 2018, with the current price differential of around $255/st.

Source: MetalMiner data from MetalMiner IndX(™)

Iron ore prices increased again this month, after some moderation in price increases from earlier this year. Weather issues stemming from Tropical Cyclone Veronica in Australia last month kept prices higher, in addition to a general improvement in the industrial outlook in China, which could support higher iron ore prices, and therefore higher steel prices. Coking coal prices, on the other hand, have generally fallen so far in 2019, which may exert downward pressure on steel prices.

What This Means for Industrial Buyers

Even with the lower index value this month, some forms of steel still showed upward momentum, indicating prices could be on the rise once again; that is, at least for the short term, supported by stronger-than-expected economic performance in the U.S. and China.

Like last month, plate prices continue to sit at high levels. Plate prices sit near $1,000/st, rising again after briefly falling back to $993/st in late March.

With prices still somewhat higher and other factors indicating some potential to increase further, buying organizations need to watch the market carefully for the right time to buy.

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Actual Raw Steel Prices and Trends

U.S. shredded scrap prices stayed flat during March while the U.S. HRC futures contract 3-month price fell 6.3%.

Chinese Dalian coking coal prices were down 7.2%, falling the most of all the metals tracked in the Raw Steels MMI basket.

The price of Korean scrap steel increased the most, jumping 16.25%. Other price movements in the basket were much more modest, oscillating around the plus or minus 1% mark.

The mandate for the Global Forum on Steel Excess Capacity (GFSEC), an organization that has come in for criticism from the U.S., expires in November.

However, the European Steel Association (EUROFER) argues the forum, which has focused on creating policies to tackle global excess capacity, should have its mandate extended.

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EUROFER released a statement ahead of a meeting of the GFSEC March 28-29, calling for the extension of its mandate (scheduled to expire in November).

“We call on members of the Global Forum to agree on a continuation of the forum’s mandate beyond November 2019,” EUROFER Director General Axel Eggert said in a prepared statement. “Continued international work on excess capacity and related government support measures would contribute to the sustainability of our global industry.”

Steel excess capacity — which drives down prices and consequently floods markets with cheap product — has been a consistent talking point among steel circles in Europe and the U.S. As most are aware, the U.S. last year imposed tariffs on imported steel.

China, the world’s top steel producer, is often the target of complaints vis-a-vis overcapacity. China’s crude steel production has increased the last couple of years, from 807.6 million tons in 2016 to 870.9 million tons in 2017, then reaching a record 928.3 million tons in 2018.

Source: World Steel Association

The GFSEC was formed in September 2016 by G20 leaders at a Hangzhou summit.

“GFSEC’s work has already produced results, such as detailed statistics on steel capacity and production around the world and has instigated work to cut excess capacity where it is needed most,” Eggert added in his statement.

In late 2017, the 33 members of the GFSEC met and agreed to a set of six guiding principles for the creation of specific policies to combat overcapacity (the full report from the meeting is available here).

According to a release from the Organization for Economic Cooperation and Development (OECD), the principles “emphasize the importance of having the right policy framework conditions; they call for the removal of subsidies and other measures that distort steel markets; they stress the need for a level playing field among steel enterprises of all types of ownership; they highlight the importance of the Forum regularly updating its information on capacity and policy measures.”

Nonetheless, EUROFER said the agreement and steps taken since then mark only the “beginning of the process.”

“Global steel overcapacity is still at least 550 million tonnes, according to the OECD,” Eggert said. “We are still very much at the beginning of the process, and there is clearly a need for the GFSEC’s mandate to be extended.”

Furthermore, Eggert argued not extending the mandate would be dangerous.

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“In a world where global overcapacity is still very much present – and with proliferating trade distortions – there is a greater need than ever for the GFSEC,” Eggert said. “Not renewing the mandate of the Global Forum would mean abandoning the global steel industry when it is still at a perilous juncture. Effective multilateral cooperation is needed in order to preserve fair and free trade in this essential sector.”

The GFSEC came in for criticism from the U.S. last year following a meeting of members September 20, 2018, in Paris.

“Unfortunately, what we have seen to date leaves us questioning whether the Forum is capable of delivering on these objectives,” the Office of the United States Trade Representative said in a prepared statement following the meeting. “We do not see an equal commitment to the process from all Forum members. Commitments to provide timely information critical to the proper functioning of the Forum’s work, for example, have gone unfulfilled. More importantly, we have yet to see any concrete progress toward true market-based reform in the economies that have contributed most to the crisis of excess capacity in the steel sector.”

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This morning in metals news, Nucor announced a major investment toward a new steel plate mill in Brandenburg, Kentucky, steel CEOs ask the Trump administration to maintain the Section 232 duty on steel, and copper prices moved up as U.S.-China trade talks resumed today.

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Nucor Announces Kentucky Investment

Nucor Corporation is making a $1.35 billion investment toward a new steel plate mill in Brandenburg, Kentucky, the steelmaker announced Wednesday.

According to a company release, the mill is expected to have an annual capacity of 1.2 million tons and will be fully operational in 2022.

“This strategic investment will enable us to build a clear market leadership position in the U.S. plate market. Kentucky is an excellent location for this mill, right in the center of America’s largest plate consuming region,” said John Ferriola, chairman, CEO and president of Nucor Corporation, in a prepared statement. “Our acquisition of the Gallatinsheet mill in Ghent, Kentucky five years ago has been a tremendous success, and we are pleased to add a second mill in the state.”

Steel Executives Urge Trump Administration to Keep Steel Tariffs

With news this week that the Senate is planning on putting forth a bill that will target the president’s Section 232 authority, executives of domestic steel companies are asking the Trump administration to hold firm on maintaining the existing duties on steel imports.

“Now is not the time to blink,” U.S. Steel CEO David Burritt was quoted as saying during a hearing Wednesday, according to Reuters. “Section 232 must continue to be applied to all countries, especially the largest import sources, whether that’s a tariff or a hard quota. Even our best allies can be conduits for foreign steel from China or elsewhere.”

Copper Up on Trade Talks

The price of copper made gains Thursday as the U.S. and China reconvened for trade talks in Beijing today, Reuters reported.

In addition, protests at a Peru copper mine fueled concerns about supply disruption, according to the report.

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LME copper rose 0.6% to $6,372 per ton, according to the report.