Steel

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This morning in metals, officials from Thyssenkrupp’s home German state indicated they are confident the merger proposed for the German firm and Tata Steel can be pushed through, a mothballed U.K. steel plant is now back up and running, and Great Lakes steel production picked up last week.

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Time to Make a Deal

Tata Steel and Thyssenkrupp recently came to an agreement to merge their European operations — however, there are still some hurdles to clear in order to seal the deal on the move.

On Wednesday, German officials in North Rhine-Westphalia, the state in which Thyssenkrupp is located, indicated they were confident that management of the company would be able to strike a deal with workers, Reuters reported.

Gupta to Revive Shuttered Former Tata U.K. Facility

Sanjeev Gupta, of Liberty Speciality Steels, re-opened a steel facility Wednesday in the U.K. that was closed by former owner Tata Steel, The Economic Times reported.

Gupta revived a small bloom caster at its Aldwarke works facility in Rotherham, the Times reported. The move comes more than a year and a half after the facility was closed by Tata Steel UK.

Great Lakes Steel Production Up

Production of steel in the Great Lakes region recently got a boost, ticking up 2.7% last week, according to The Northwest Indiana Times.

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Last week, 684,000 tons of steel were produced in the region, according to the report citing data from the American Iron and Steel Institute (most coming from the northwest Indiana counties of Lake and Porter).

It would be an exaggeration to say steel producers have never had it so good, but on the whole, conditions have been supportive of the sector this year — both globally and in top producer China.

What’s Up, Beijing?

Beijing’s supply side reforms, cutting out older, less efficient steel plants largely on environmental grounds has directly supported the larger state steel sector. Much of the “illegal” and less well-regulated (therefore more polluting) producers are concentrated in the smaller end of the private sector. These have been the first to suffer enforced closure as Beijing pushes through its aim of closing some 50 million tons of capacity this year.

A widespread clampdown on the scrap-based EAF producers (virtually all of whom are in the private sector, and deemed illegal because they often do not have licenses and more polluting because they are based on scrap)  has constrained supply and given rebar prices a drug-induced high.

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The move underpins Beijing’s rationale to achieve as many wins as possible, reduce capacity to avoid anti-dumping moves by trading partners, improve environmental conditions (specifically particulate emissions, which cause smog), and consolidate a highly fragmented domestic steel industry all while simultaneously minimizing job losses and supporting the state sector at the expense of the private sector.

Bingo — they have it all!

Tale of the Tape

So far, you should say, Beijing is doing very well. Capacity has closed, particularly older and therefore likely less efficient capacity; steel production is actually up 4% year-on-year, and prices have risen robustly.

The state sector is doing very well, enjoying high prices, strong demand with the removal of their smaller competitors and, following an 18% fall in iron ore prices over the last month, look set to make even better profits in the last quarter. Iron ore import volumes have also fallen of late, as the graph below from the FT shows, but that may partly be due to large inventories that had built up as the price rose.

Source: Financial Times

Steel prices in China as tracked by MetalMiner’s IndX have weakened this month, but with the fall in raw material costs Chinese producers’ margins have held up well.

Free Download: MetalMiner’s September 2017 MMI Report

In the rest of the world, China’s reduced exports, down 26% year-to-date due to anti-dumping barriers and improved domestic demand, have created some respite for foreign steel mills, particularly Russian, Turkish, Ukrainian and Canadian suppliers that have stepped in to take China’s place as low-cost supplier to the U.S. and European markets.

Producers in Europe are still complaining bitterly about competition, but as with the U.S., realistically it is less about China and more about low-price suppliers in Russia, Ukraine and elsewhere.

Outlook

On the back of rising global steel demand and soft input costs, steel producers’ margins should be supported even in Western markets and prices remain firm next year — even if China’s demand grows only slowly.

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This morning in metals news, the International Trade Commission rules that imports of solar cells are hurting U.S. manufacturers, iron ore enters a bear market and the UN proposes that businesses take responsibility for environmental pollution.

A Bear Market for Iron Ore

The price of iron ore has undergone the biggest weekly fall in 16 months, Bloomberg reports. Having slipped into a bear market, the metal was trading at $63.56/ton on Friday, more than 20% lower than its August 21 high of $79.93/ton.

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We may see this price slump to continue for the near future. Some expect the price of iron ore to drop to the $50s in the fourth quarter. If China’s steel production cuts do go into effect as planned this winter, the country’s steel output may decrease as much as 30 million tons, thus cutting iron consumption by 50 million tons.

End of the U.S. Solar Boom?

The U.S. International Trade Commission voted in a 4-0 decision on Friday that the U.S. solar energy industry is being hurt by foreign overcapacity and cheap solar cell imports, the Washington Post reports. However, the proposed 40-cent-per-watt tariff on solar cells would double the price of solar panels, putting pressure on the rest of the U.S. solar industry.
Read more

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India’s recent decision to impose an additional import tax on a number of stainless steel flat products from China for five years has generally been welcomed by the Indian steel industry and trade bodies.

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The tax, said the Government of India, was to curb the influx of cheaper foreign imports.

A countervailing duty of 18.95% has been imposed on some hot-rolled and cold-rolled stainless steel flat products. This is aimed at helping local steelmakers benefit when there is a surge in imports, the government said.

A statement by the government said Chinese imports “were distorting the domestic market, which was under huge stress and led to financial stress in the industry.”

In the past, too, India has imposed a slew of anti-dumping duties on imports of steel and stainless steel products from China, Japan and South Korea.

According to a Reuters report, the U.S. Department of Commerce also said it would be looking into possible dumping and subsidization of stainless steel flanges from China and India.

Steel producers in India have welcomed the move.

According to Jindal Stainless Vice-Chairman Abhyuday Jindal, the decision will encourage production of the metal within the country and will provide some relief to the domestic industry.

India’s apex stainless steel industry body, the Indian Stainless Steel Development Association (ISSDA), has also welcomed the imposition of countervailing duty, President KK Pahuja said.

Due to the subsidized imports from China, the domestic players were facing huge losses. Industry experts have claimed several MSME segment businesses were forced to shut down due to subsidized imports from China. The imposition of a countervailing duty would help revive the industry, regain lost ground and create jobs, the Pahuja added.

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The CVD investigation was initiated on April 12, 2016, by the Directorate General of Anti-Dumping and Allied Duties (DGAD) in response to a surge in subsidized imports of stainless steel flat products from China.

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This morning in metals news, Chinese steel production once again hit a record last month, copper took a dip, and the gap between high-grade and low-grade iron ore grew larger as China attempts to combat its smog problem.

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Steel Output Hits New Record in China

Steel mills in China cranked up production levels en route to hitting a new monthly production record, according to Bloomberg.

According to the report, Chinese crude steel output hit 74.59 million metric tons in August, surpassing the previous peak of 74.02 million in July.

Copper Falls Back

Copper has been having a good year, but it fell to a four-week low Thursday as a result of what Reuters calls lackluster Chinese economic data.

What appears to be slowing demand from China, the world’s top metals consumer, contributed to the metal’s drop, according to the report.

Premiums Soar for High-Grade Iron Ore

Sticking with the China theme, Reuters reported the gap between high-grade and low-grade iron ore in China grew as a result of the country’s efforts to fight pollution.

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The trading gap between the two forms of ore was at its highest since August 2011, according to the report.

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This morning in metals news, U.S. primary aluminum is still low despite an increase in prices, China Zhongwang Holding announced it had purchased a German aluminum producer and associations representing steel, soybeans and poultry were united by the issue of steel tariffs.

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U.S. Primary Aluminum Production

Aluminum prices have been on a steady climb in recent months, but primary aluminum production remains low, according to a report in Hellenic Shipping News.

In fact, since January 2015, the country’s primary aluminum production has dropped 50%.

Zhongwang Makes Investment

China Zhongwang Holding announced Wednesday that it is making an investment in a German aluminum producer Aluminiumwerk Unna AG, according to state-owned news agency Xinhua.

The value of the deal has yet to be disclosed, according to the report, but the acquisition is part of Zhongwang’s effort for an increased presence in the aircraft aluminum market.

Steel, Soybeans and Chicken

Associations representing steel, soybeans and chicken came together this week to express their belief regarding the potential negative impact of steel tariffs.

Platts reported that the American Institute for International Steel, the National Chicken Council and the American Soybean Association published a new report covering the impacts of steel tariffs on supply chains.

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The Trump administration’s Section 232 investigation into steel imports is ongoing. The probe, launched in April, has a January deadline for completion.

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Details are pretty sketchy at present, but a recent Reuters article sheds light on an investigation underway by Germany’s competition regulator into a suspected violation of antitrust laws in the steel industry.

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According to Reuters, the investigation expands an ongoing cartel office inquiry, which already covers makers and sellers of stainless steel, car manufacturers and suppliers, as well as companies in the forging sector.

The suspicion is of “anti-competitive collusion between companies” on flat steel products. Although not all steel firms are currently under investigation, many of the largest ones are.

Both ArcelorMittal and Salzgitter have confirmed units of their company have been searched in the first phase of an operation late last month that included seven companies and three private homes in Germany. According to the Reuters report, Manager Magazin reported that included in the investigation is the German Steel Federation, an industry association, although the publication did not cite any sources in its report.

Interestingly, any collusion may be limited. Kajor steel producer Thyssenkrupp and steel distributor trader Kloeckner & Co. both said they had not been searched, according to Reuters, nor is this part of a wider European Union action. Allegations appear to be restricted to several steel producers in Germany, although some of them, such as ArcelorMittal, are multinationals.

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This morning in metals news, U.S. steel production is up for the year, copper backed off its three-year high and a U.S. firm extended its merger deal with a Chinese company.

Steel Production Up 3.2%

According to data released by the American Iron and Steel Institute (AISI), U.S. raw steel production is up 3.2% in the year to date (through Sept. 2) compared with the same time frame in 2016.

Adjusted production through Sept. 2 amounted to 60,900,000 net tons, up from the 59,025,000 net tons last year to the same point last year.

For the week ending Sept. 2, domestic raw steel production was 1,747,000 net tons, up 8.6% for the same week in 2016 and up 0.4% from the previous week (ending Aug. 26).

Copper Falls Back

After hitting a three-year high, copper fell back slightly from that Wednesday.

LME copper fell 0.3% to $6,880 a ton by 0155 GMT, according to Reuters.

Staying Together

Aluminum and rolled products producer Aleris International extended a merger agreement with Chinese firm Zhongwang USA LLC, according to Platts.

The deal was extended to Sept. 15, according to the report. The deal was previously set to expire Aug. 31.

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This morning in metals news, LME copper had a quieter Wednesday, Mexico looks to formulate a backup plan for a potential life after NAFTA and steelmakers are looking to maintain their market share in the world of skyscrapers.

LME Copper Hangs Near Three-Year High

LME copper didn’t have as big of a day on Wednesday as it did on Tuesday — nonetheless, the metal is still close to its three-year high.

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According to Reuters, a bounceback in the dollar slowed momentum gained from growth in China’s housing and manufacturing sectors.

Life After NAFTA? Mexico Considers It

As President Donald Trump in recent weeks has resumed threats of terminating the North American Free Trade Agreement (NAFTA), Mexico is looking to formulate a backup plan.

Mexican Economy Minister Ildefonso Guajardo called the talks to renegotiate the deal a “roller coaster,” according to Reuters.

With the rhetoric from Trump picking up, it’s not surprising that Mexico is planning for a situation in which Trump pulls the plug on the 23-year-old trade deal.

Steelmakers with Eyes to the Skies

Concrete is becoming increasingly popular as a building material — so much so that steelmakers are  working hard to preserve their construction market share.

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According to a Bloomberg report: “Since 2000, steelmakers outside China expanded output of structural beams and columns at only about half the pace of rods, or rebar, used to reinforce concrete, the World Steel Association says.”

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Several sources are leading on news that President Trump has twice rejected a Chinese proposal to cut steel overcapacity, despite the endorsement of some of his top advisors.

An agreement reached between U.S. Commerce Secretary Wilbur Ross and Chinese officials last month agreed a cut of 150 million tons per annum of capacity by 2022 was vetoed by the president, apparently because he preferred a more “disruptive strategy,” according to Reuters and the Financial Times.

The articles suggested the 22% rise in steel imports through July of this year compared to a year ago, reported by the American Iron and Steel Institute (AISI), spurred calls for action from U.S. steel producers to apply tariffs. Those calls may have influenced Trump’s position, as may the input of Steve Bannon, since fired, and Peter Navarro, an economic assistant to the president on trade matters.

The rejection of a deal brokered by Ross’ team seems to have undermined his position and probably leaves little room for further negotiation. The Chinese have gone away to consider their options, but rumors reported in the Financial Times suggest retaliatory action seems the most likely.

But while picking a fight with China probably makes for good headlines, at least as far as U.S. imports are concerned, is it the primary antagonist?

Not if you look at the AISI data.

Their findings suggest Taiwan and Turkey were the countries making up much of the increase. There was a sizeable increase from other countries, too, meaning Germany, up nearly 60%, and Brazil, up 80%, on three-month rolling average measures.

At 83,000 tons, China’s share of finished steel imports is a fraction of South Korea’s 352,000 tons, Turkey’s 245,000 tons or Japan and Germany’s about 138,000 tons.

Unless the administration plans on tackling these suppliers, picking out China seems a bit like fiddling while Rome burns.

We would hope that Trump’s presidency ends much better than Nero’s both for the man and the country, but picking fights that have a pragmatic strategy rather than catching headlines would be a good first step.