Steel

Continuing our look back at some of the most-viewed posts of the year on MetalMiner, today we’ll take a look at some of the most popular steel-centric posts of the year.

Below are the top 10 most-viewed steel-centric posts here on MetalMiner this year:

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In its final quarterly report of the year, U.S. Steel last week cited a need to change to mitigate factors outside of its control.

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Changes have come of late in the form of job losses and plant closures. Last week, U.S. Steel announced the closure of a Michigan plant, leading to more than 1,545 layoffs at its Great Lakes Works plant in Ecorse, Michigan.

“We understand the impact today’s announcement to indefinitely idle Great Lakes Works has on many of our stakeholders, and we are acting now to reposition U. S. Steel around a footprint differentiated based on cost or capability,” President and CEO David B. Burritt said in the firm’s earnings release.

Burritt continued, acknowledging the steelmaker needs to adapt.

“While the current realities of the markets we serve are having a significant impact on our short-term results, we are taking swift action to align our operational footprint and financial strategy with our customers’ future to ensure we continue executing our ‘best of both’ integrated and mini-mill technology strategy,” Burritt continued.

“Fourth quarter expected results confirm the need to change to make the business more resistant to factors outside of our control. While the decisions being made are difficult, we believe they allow us to drive increased stockholder value as we move towards our future faster with a more capital efficient footprint.”

The steelmaker reported a loss of $25 million in the fourth quarter, citing weakness in its European and tubular segments. U.S. Steel forecast a diluted loss per share of $1.15 in the fourth quarter.

The steelmaker estimates full-year adjusted EBITDA of $682 million, excluding “approximately $285 million of estimated restructuring and other charges and approximately $47 million of estimated impacts from the December 24, 2018 fire at our Clairton coke making facility.”

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

U.S. Steel shares dropped nearly 11% last Friday, down to $11.92 per share, following the earnings report and news of the Michigan layoffs.

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This morning in metals news, President Donald Trump won’t go through with a previous tariff threat on Brazilian steel and aluminum, Chinese stainless steel production growth is forecast to drop in 2020, and a power outage impact Norsk Hydro operations last week.

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U.S. backs off tariff threat

After President Trump met with Brazilian President Jair Bolsonaro last Friday, Trump agreed not to follow through on a previous threat to impose steel and aluminum tariffs on Brazilian exports, the Wall Street Journal reported.

The news comes less than a month after the initial threat, which would have reversed an exemption granted to Brazil (and Argentina) when the Trump administration initially imposed Section 232 steel and aluminum tariffs in March 2018.

Chinese stainless production growth to drop in 2020

China’s stainless steel production growth is forecast to drop in 2020, according to the Hellenic Shipping News.

Growth is expected to hit 5% next year, down from 11% this year.

Norsk Hydro hit with power outages

Norway’s Norsk Hydro saw power outages impact its operations at Alunorte and Paragominas last week.

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“On December 18, a transmission tower overturned, ceasing power supply to Hydro’s Paragominas bauxite mine in Brazil, temporarily halting the production at the mine,” Norsk Hydro said. “Regular power supply to Paragominas is expected to resume within 5-10 days.”

The firm said capacity at the Alunorte alumina refinery will be temporarily reduced to 50-70% in order to extend the life of bauxite inventories there.

It may have taken well over 850 days for its culmination, but the recent completion of an acquisition in India is being touted as the “single-biggest recovery” under the Insolvency and Bankruptcy Code (IBC) process in India.

Earlier this week, global steel giant ArcelorMittal announced it had formally completed the acquisition of debt-ridden Essar Steel India Ltd (ESIL).

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Going ahead, the LN Mittal-led company also announced a joint venture with Nippon Steel, called AM/NS India, to own and operate the debt-ridden Essar.

ArcelorMittal holds 60% of AM/NS India, with Nippon Steel holding the balance.

Last month, the Supreme Court of India cleared the decks for the acquisition of Essar, which is mired in multimillion-dollar debt.

On taking over, the co-owners have announced their resolve to “play an active role in the Indian steel market.” They have decided to step up capacity at the plant from the current 9.6 million ton per annum (mtpa) to 12 or 15 mtpa, according to LiveMint.

As widely reported in the Indian press, Lakshmi Mittal, chairman and chief executive of ArcelorMittal, said this acquisition was an “important strategic step for ArcelorMittal.” India, he added, was an attractive market, and ArcelorMittal had been on the lookout for opportunities to build a meaningful production presence in the country for over a decade.

What attracted it to ESIL was its sizable, profitable, well-located operations.

Incidentally, AM/NS India is an integrated flat steel producer and the largest steel company in western India. Its current level of crude steel production is about 7.5 mtpa against a 9.6 mtpa capacity.

Following the completion of the acquisition process, ArcelorMittal has initiated payment of the dues. Payment from ArcelorMittal has started flowing, with all payments likely to be cleared soon, Business Today reported.

For many years, AM/NS has been investing in countries like the U.S., Brazil and Japan. Its India plans include an intention to increase finished steel shipments to 8.5 mtpa over the medium term, The Hindustan Times reported. This will be achieved by initially completing ongoing capital expenditure projects and infusing expertise and best practice to deliver efficiency gains — and then through the commissioning of additional assets — while simultaneously improving product quality and grades to realize better margins, the company said in a statement.

The promise after this major acquisition of adding more steel to India’s total production may all be fine — but in the face of a slow growth, what will this additional capacity do to it is a question on every analyst’s mind.

Domestic steel prices have fallen by around 10% since the start of 2019. Domestic demand has also slowed, and is estimated to fall to 4-5% this fiscal from the 7.5-8% growth recorded in the previous two years, given muted construction investments and weak automotive market,” according to Crisil.

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All hopes are now pinned on an infrastructure boost promised by the Indian government as part of a larger package aimed at spurring economic growth, which, in turn, could fuel steel consumption.

The U.S. steel industry’s capacity utilization rate for the year through Dec. 14 held at 80.1% for the second straight week, according to weekly production reported by the American Iron and Steel Institute (AISI).

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The U.S. steel industry churned out 92.6 million tons of steel for the year through Dec. 14, marking a 1.8% increase compared with production during the same period in 2018 (when production reached 90.9 million tons at a capacity utilization rate of 78.2%).

Meanwhile, production for the week ending Dec. 14 reached 1.84 million tons at a capacity utilization rate of 79.7%. That weekly production total marked a 0.9% decrease from production during the same week in 2018, which totaled 1.86 million tons at a capacity utilization rate of 79.4%.

Production for the week ending Dec. 14 rose 1.3% compared with production for the week ending Dec. 7, 2019 (when production totaled 1.82 million tons at a capacity utilization rate of 78.2%).

By region, production for the week ending Dec. 14, 2019, totaled:

  • Northeast: 212,000 tons
  • Great Lakes: 681,000 tons
  • Midwest: 192,000 tons
  • Southern: 669,000 tons
  • Western: 90,000 tons

Steel prices, meanwhile, have been rising on the heels of price increases imposed by major U.S. steel producers.

U.S. HRC is up 9.59% over the last month, up to $560/st, according to MetalMiner IndX data. U.S. HDG, meanwhile, is up 7.01% to $824/st. U.S. CRC is up 6.99% to $750/st.

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U.S. plate prices were late to the party, but plate has increased 13.58% over the last month, climbing to $694/st.

The Raw Steels Monthly Metals Index (MMI) showed some strength this month with a three-point increase, rising to 69 from 66 last month.

U.S. steel prices rebounded in November when recent mill prices increases took effect.

Source: MetalMiner data from MetalMiner IndX(™)

Once again, plate price increases have lagged behind the other forms, (similar to July, when plate prices failed to gain):

Source: MetalMiner data from MetalMiner IndX(™)

However, plate prices now look in line with historical norms, in terms of relative values across key types. Plate prices may now begin to move with other prices, rather than on a unique trajectory.

U.S. capacity utilization slipped below 80% during late November. The rate stayed lower during the week ending Dec. 7, when capacity utilization totaled 78.7% based on production of 1.82 million tons. During the same period last year, production totaled 1.86 million tons based on a capacity utilization of 79.4%.

Year-to-date capacity utilization through Dec. 7 totaled 80.1%, with 90.74 million tons produced. This represents a 1.9% increase compared to last year’s production of 79.06 million tons during the same period (based on a capacity utilization of 78.2%).

Chinese HRC, CRC steel prices show slight gains

Chinese HRC and CRC prices increased during November — by roughly 6% and 4.5%, respectively — bringing prices back to September levels.

Source: MetalMiner data from MetalMiner IndX(™)

HDG and plate prices held flat, however, keeping prices among the four key forms sideways overall.

Nippon Steel to potentially shutter two blast furnaces; Japanese fiscal stimulus package likely to boost demand

In order to better align fixed production costs with domestic demand, Nippon Steel may close two of 15 blast furnaces in operation across the country by March 2024.

Demand for steel slowed for the Japanese producer due to decreasing domestic population, higher export barriers, and trade issues, according to management team discussions with the press.

Typically, the company exports more than 40% of output. Recently, however, export levels suffered due to the desire of other Asian countries to boost domestic steel production, in addition to increased Chinese exports.

The Japanese government recently announced a $122 billion fiscal stimulus package that will likely boost demand levels due to infrastructure development targeting natural disaster mitigation.

Major merger on the horizon for Cleveland-Cliffs, AK Steel

Cleveland-Cliffs Inc. recently announced its intent to purchase AK Steel Holding Corp. for $1.1 billion.

As detailed in a recent MetalMiner article, the deal provides Cleveland-Cliffs with built-in demand for pellet production, while also entering Cleveland-Cliffs into steel production.

Cleveland-Cliffs now derives around 23% of annual income from AK Steel, the company’s largest customer with the exception of ArcelorMittal SA.

The agreement still faces antitrust vetting. Completion of the deal is expected during H1 2020.

U.S. economic indicators remain positive overall

While growth remains somewhat constrained as 2019 comes to a close, the U.S. economy continues to maintain momentum overall.

According to the most recent Beige Book report released by the Board of Governors of the Federal Reserve System, based on data collected through Nov. 18, economic activity in aggregate expanded modestly from October through mid-November, at a similar pace as the previous reporting period.

Most districts reported increases in auto sales. Also, an increasing number showed improved manufacturing activity, but the majority still reported flat activity.

Residential home sales were flat to higher across districts, while residential construction improvements expanded to more areas.

Nonresidential construction continued to increase modestly, while the energy sector showed modest deterioration in activity.

The Federal Reserve Bank of Atlanta’s GDPNow model estimate of GDP growth jumped by 0.5% to 2.0% on Dec. 6 based on recent data inputs.

GDPNow provides a running forecast of the official estimate in advance to its release and is based only on mathematical results of the model.

What this means for industrial buyers

Improved demand appeared to push up prices this month.

So far, however, price increases look fairly mild, with some recent momentum attributed to pushed-forward Q1 2020 demand.

It’s still too soon to tell if price increases will continue from here.

Buying organizations interested in tracking industrial metals prices with ease will want to request a demo of the all-new MetalMiner Insights platform.

Buying organizations seeking more insight into longer-term steel price trends may want to read MetalMiner’s Annual Metal Buying Outlook.

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Actual raw steel prices and trends

LME billet three-month prices increased the most among index values this month, rising by 9.3% month over month to $262/st as of Dec. 1.

The U.S. Midwest HRC futures spot price dropped 0.4% to $493/st, while the Midwest HRC futures three-month price increased by 7.5% to $590/st.

U.S. shredded scrap prices increased 4.4% to $235/st.

All Chinese prices in the index increased. Coking coal increased the most, by 6.4% to $264/mt, while HRC increased by 6.3% by $530/mt. Steel billet increased by 2.9% to $510/mt, while slab rose by 2% to $519/mt.

Iron ore prices remained essentially flat, with a mild 0.1% increase to around $64 per dry metric ton.

Korean scrap prices registered a third double-digit monthly decrease, down by 11.5% to $72/mt. Korean pig iron prices also dropped this month, falling 1% to $364/mt.

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India may have become a net exporter of steel this year, but domestic demand may remain a problem area.

The US-based Moody’s Investors Service has said in a recent report, titled “Asia: Steel – 2020 outlook,” that India’s steel growth will slow down in the coming days because of weak automotive and manufacturing demand.

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In October this year, India’s domestic steel production fell for the first time in seven months. Steelmakers produced about 9.09 million tons of steel, down by 3.4% over October last year, according to figures by the World Steel Association.

The last time steel production had fallen in a month was in March 2019, when the decline was 1%, Business Today reported.

October’s decline came after a steep drop in the growth rate in September, when production grew by just 1.6% (a five-month low).

The Indian government, on the other hand, paints a different picture.

The steel sector is witnessing growth in the recent past after a slowdown, with India becoming a net exporter in the current financial year, according to minister Dharmendra Pradhan.

The minister said in the Indian Parliament that steel imports had gone up slightly in the last three years, rising from 7.23 million tons in 2016-17 to 7.83 million tons in 2018-19.

But domestic production had consistently increased, regardless of such imports.

Contrary to reports talking of a slowdown in domestic uptake of steel, the minister said the steel sector was “witnessing improvement in recent past after a slow down.”

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However, a report in The Economic Times, citing a report by India Ratings and Research (Ind-Ra), noted India’s steel’s net leverage and interest coverage are likely to deteriorate in fiscal year 2020 as a result of compressed EBITDA margins, due to a drop in realizations. Much of this was because of a demand slowdown and increase in raw material prices in fiscal year 2020 on a year-over-year basis.

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This morning in metals news, U.S. steel prices have gained some upward momentum over the last month, the U.S. and Mexico are reportedly drawing closer to an agreement over revisions to the United States-Mexico-Canada Agreement (USMCA), and U.S. steel import permit applications declined in November.

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Steel prices rise

After appearing to bottom out in mid-October through mid-November, U.S. steel prices have since been on the rise.

U.S. CRC has jumped 8.04% over the last month, while HDG is up 9.25%, according to MetalMiner IndX data.

U.S. HRC has surged 11.8% over the last month.

U.S., Mexico near USMCA deal

According to Reuters, the U.S. and Mexico are nearing a deal regarding revisions to the USMCA, the proposed successor to the North American Free Trade Agreement (NAFTA).

Leaders of the three countries signed the agreement late last year, but it still requires ratification by the countries’ legislatures.

This summer, Mexico’s legislature was the first of the three to ratify the agreement; however, ongoing revisions to the deal are being worked through, as the deal still requires Democratic support in the U.S.

Steel import permit applications decline in November

Steel import permit applications in November declined compared with the previous month, according to the American Iron and Steel Institute (AISI).

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Permit applications in November totaled 1.86 million net tons, AISI reported, down 28.1% from October’s recorded 2.59 million net tons.

President Donald Trump said last week that he would impose import tariffs on steel and aluminum from Brazil and Argentina, accusing them of manipulating their currencies and hurting American farmers.

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“Therefore, effective immediately, I will restore the Tariffs on all steel & aluminium that is shipped into the U.S. from those countries,” Trump tweeted — taking both countries and the markets by surprise.

Both Brazil and Argentina had been exempted from the 25% steel tariff and 10% aluminum tariff imposed in March 2018 following negotiations that settled in May of that year, which resulted in a quota system to limit imports to the previous year’s level.

The gist of the president’s case is both countries have devalued their currencies and, as a result, undercut American farmers looking to export agricultural products like soy beans to China and elsewhere.

It’s true to say both the Brazilian real and the Argentinian peso have fallen relative to the dollar, but Brad Setser, a senior fellow for international economics at the Council on Foreign Relations, is quoted in The New York Times as saying neither Brazil nor Argentina was manipulating its currency. In fact, both countries had been selling foreign exchange reserves to prop up the value of their currencies.

He added Argentina was in a “full-blown” economic crisis and was close to running out of such foreign exchange. The Argentinian peso has lost nearly 60% of its value against the dollar this year, the Financial Times reported, following the failure of populist politics and investor worries in the face of a rising debt burden.

To suggest either Brazil or Argentina have any control over their currencies is laughable.

Argentina faces debt repayments that it will struggle to pay, with more than $60 billion coming due in 2020, an earlier Financial Times article noted. The article reports the markets are rattled over concerns that Mr. Fernández may resort to printing money to cover some of the government’s spending commitments and to stimulate an economic recovery, with the country mired in recession.

The fear is that could fuel what is already one of the highest inflation rates in the world, running at around 50%. While the loss of steel and aluminum sales to the U.S. would be serious, the two products make up some 3% of Argentinian exports, paling in comparison to the agricultural sector, which dominates Argentina’s exports.

Like Brazil, Argentina is caught between a rock and a hard place.

Both economies are struggling. The Brazilian real recently fell to a record low against the dollar as the economy tries to tackle high unemployment and weak growth, while Argentina is in an outright recession.

Both countries need all the export dollars they can earn, but in many ways they need China more than the U.S.

Weaker currencies do help them win export business; it is true they have benefitted from the U.S.-China trade war, but it was not of their making.

As The New York Times states, China is a major purchaser of American pork, soybeans and other agricultural goods. As the U.S. and China have slapped tariffs on each other’s products, China has shifted to purchasing products from Brazil and Argentina instead, annoying Washington in the process.

Quite what they expect the two South American countries to do, though, is unclear. Both countries have been trying to support their currencies all year, to no avail.

Maybe Washington is hoping both countries will voluntarily limit sales to China? Would the U.S. do that if the roles were reversed?

Nor would the imposition of tariffs be a win-win for the U.S. steel industry.

Brazil exports some $2.2 billion of steel products to the U.S., but much of it is as semi-finished material, such as rolling slabs, the U.S. Department of Commerce reported this year. Raising costs for U.S. steel companies that import Brazilian slab and other semis will be the price for supporting American farmers — if this action is followed through as expected.

Nor has a grace period been suggested to allow material on the water to arrive and be cleared, as is normally the case with the imposition of such tariffs. The announcement said the tariff would be applied immediately, potentially imposing massive fines on companies with hundreds of millions of dollars of material on the water or in manufacture.

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No doubt the tariff announcement is intended as a negotiating tactic to force parties to come to the table.

Similar moves elsewhere have met with mixed success — let’s hope this case is resolved sooner rather than later.

Vertical integration may play well in classic corporate HBR (Harvard Business Review) circles, but steel industry observers may have a hard time envisioning the synergies Cliffs outlined in its merger announcement and presentation Dec. 3, creating a best-in-class, EBITDA-maximizing combined Cliffs-AK Steel entity!

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To us, the best rationale for the deal appears on slide 14, outlining AK Steel’s short-term debt position:

If you buy the notion that Cliffs can swallow AK and convert that company’s debts to its own and save on interest expense, then score one for the deal!

So why would Cliffs buy AK Steel?

A compelling reason appears on slide 11:

Despite AK Steel’s relatively improved financial performance under the leadership of CEO Roger Newport, if AK Steel represents ~30% of Cliff’s annual iron ore sales, Cliffs faces significant “customer concentration risk.” In other words, the health of AK Steel would significantly — negatively — impact Cliffs.

Forget about “renewal risk” — let’s just call it “customer risk.”

Cliffs would be hosed without a healthy AK Steel!

What about AK’s Ashland Works?

We continue to see different public announcements from AK Steel about the cost of Ashland Works. The Ashland Works facility today operates a hot-dipped galvanizing line (the blast furnace was idled nearly four years ago).

According to comments from AK Steel directly, “…the company announced it would close the ‘largely-idled’ Ashland Works facility by the end of 2019 to ‘increase utilization’ at its other U.S. operations. The plant employs 230 people and the closure would yield approximately $40 million in annual cost savings, according to the company.”

But by keeping it open, as detailed by Cliffs, the Ashland Facility, “Eliminates up to $60m of closure-related costs.” The Ashland facility will instead undergo a conversion, which it says, “Potentially provides a compelling, low-capex, high-return opportunity to be a significant merchant pig iron supplier in the Great Lakes.” (We presume U.S. Steel and ArcelorMittal will avail themselves of this compelling offering.)

So, we’re not sure if keeping Ashland Works open saves money or if closing it does.

We won’t pontificate over the “AK Steel best-in-class position in non-commoditized steel” for a variety of reasons that we have previously covered here in our GOES MMI series. (Or the fact that the rise of electric vehicles will start to make a dent in the need for the kinds of automotive exhaust grades, such as 439 and 441, produced by AK Steel.) We acknowledge AK does have a strong position in ultra-high-strength steels.

So, the real question comes down to the “synergies” outlined by Cliffs.

Does the margin Cliffs generates — approximately $30/$40 per short ton for every pellet produced and sold to AK — translate to an EBITDA jump of that same amount for steel products sold by AK, such that they leapfrog the EAF producers, as Cliffs suggests?

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Well, now isn’t that the $1.1 billion question?