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This morning in metals news, U.S. imports of steel are down 10.6% for the first seven months of the year, U.S. Steel plans to idle its East Chicago plant, and China will raise tariffs on imports of copper scrap and aluminum scrap from the U.S.

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Steel Imports Down 10.6%

U.S. imports of steel dropped 11% during the first seven months of the year compared with the first seven months of 2018, the American Iron and Steel Institute (AISI) reported.

The U.S. imported an estimated 3.03 million tons of steel in July, which marked a 48.3% increase from the previous month.

For the first seven months of the year, imports totaled 18.67 million tons, down 10.6% from import levels for the first seven months of 2018.

U.S. Steel to Idle East Chicago Plant

U.S. Steel announced it will idle its East Chicago plant by mid-November, CNBC reported, which could lead to 150 layoffs.

Shares of U.S. Steel fell 5.3% on Friday, according to the report.

China to Raise Tariffs on Copper, Aluminum Scrap

As trade tensions between the U.S. and China drag on with no apparent end in sight, China announced it will raise its tariffs on imports of U.S. copper scrap and aluminum scrap, Reuters reported.

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China will add an extra 5% to existing tariffs on the scrap metals effective Dec. 15, according to Reuters.

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All indicators seem to show that India may end up being a net importer of steel for the second consecutive year in fiscal year 2020, according to sector experts and ratings agencies.

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The reasons underpinning this development are many.

In a desperate attempt to quell the import tide, the Indian government is said to be actively looking at imposing even more safeguard duties on steel imports. These are reported to be at an advanced stage at India’s Directorate General of Trade Remedies (DGTR), the government body in charge of recommending safeguard duties. In addition, the government is being pressured by the Indian steel lobby (which is led by the large representative body of steel companies, the Indian Steel Association).

The first signs of India continuing to be a net importer this year, too, came from figures out for the April-July period of this fiscal year.

A report by CARE Ratings showed the imports of finished steel products exceeded exports by 1 million tons, according to the Business Standard. Steel exports from India in the period under review declined by 23.4% to 1.5 million tons. Despite a 6% fall, imports of finished steel products remained high at 2.5 million tons, per the Business Standard.

According to another research agency, India Ratings and Research (IRR), the fundamentals of the domestic steel sector are likely to weaken in the current 2019-20 fiscal year (ending March 31, 2020), which includes the risk of softening of prices, elevated raw material prices and weak demand, Argus reported.

Experts say additional safeguard measures imposed on imported steel products by the European Union (E.U.) have dented Indian exports to the trading bloc. E.U. nations like Italy, Belgium and Spain accounted for 5-12% share in India’s total finished steel exports in fiscal year 2019.

In fiscal year 2019, India imported around 3.1 million tons of steel from the Republic of South Korea, followed by 1.8 million tons from China and 1.2 million tons from Japan.

One more worry for Indian steel companies is the plummeting of global iron ore prices. From a five-year high of $121 per ton in July, spot iron ore prices have fallen to $93; iron ore prices are expected to fall further.

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According to the IRR, one area to watch out for is the auction of local ore mines scheduled for March 2020. If there is any delay in the auction schedule, it would lead to a disruption of local steel production.

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This morning in metals news, Chinese iron ore futures fell to their lowest level in 10 weeks, JP Morgan weighed in on the impact of tariffs on U.S. consumers and Tokyo Steel has decided to hold its prices steady for September.

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Iron Ore Slide Continues

Chinese iron ore futures fell to a 10-week low, Reuters reported.

Iron ore prices surged to five-year highs earlier this summer, but have plunged since then.

According to Reuters, the most-traded iron ore contract on the Dalian Commodity Exchange closed down 4.3% to 589.50 yuan per ton.

Tariff Impact

According to an analysis by investment bank JP Morgan, the Trump administration’s tariffs to date have had an average per-household impact of $600, CNN reported.

However, if the Trump administration goes through with the recently announced 10% on $300 billion in Chinese goods, that impact will rise to $1,000 per household.

Tokyo Steel Stands Pat on Prices

Tokyo Steel announced it will hold prices steady for September, Reuters reported.

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According to the report, the announcement marks the second straight month of price freezes from Tokyo Steel.

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Since April this year, the Indian automobile sector has been seeing signs of a slowdown in sales. This has led to job cuts and expressions of concern from some major domestic steel producers.

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The slump in the sales of four- and two-wheelers has forced companies and ancillary automotive supply units to either shut down factories for specific hours (even days) or axe shifts, leading to a reduction in both temporary and permanent workers.

Auto sales for the June quarter are at their lowest in almost two decades, according to the Business Standard, only adding to the worries of domestic flat steel producers.

Many producers are now wondering what the immediate future holds for them.

There are no signs of any immediate revival in auto sales, especially after some economy experts warned of a coming recession in India.

Added to this is the Indian government’s new drive to bring in electric vehicles. Some major automobile companies, already on the path of a switch to electric, have stopped manufacturing diesel vehicles.

Yet, there are steel and automobile industry experts who are downplaying the drop in sales.

T.V. Narendran, CEO and managing director of Tata Steel, told the Business Standard recently that the platform economy (for example, Uber and Ola) is a bigger disruptor than electric vehicles. In his opinion, as more and more people took to cab-hailing apps, the need to have their own vehicles would come down, he said.

In the June quarter, the total sales of cars, sport utility vehicles and vans declined 18.4%, the largest drop since a 23.1% drop in the third quarter of 2000-01. Every segment of the auto industry reported a double-digit decline.

A recent report in India’s national daily, The Hindustan Times, said automobile ancillaries in and around Jamshedpur, where Tata Steel’s main plant exists, were facing tough times due to a series of block closures in Tata Motors in the past month because of a market slowdown. A local association leader told the paper that about 30-odd such ancillary “steel sector companies” were on the verge of closing down, even as a dozen others had already downed their shutters.

The report quoted Inder Agrawal, president of the Aditaypur Small Industries Association, as saying that recession in the auto sector is always cyclical and that he expects things to normalize after September.

According to media reports, because of the automobile sector slowdown, steel companies were diverting products towards alternative segments, such as renewables, oil and gas, and structural steel.

Flat and long steel products are two categories which find application in the auto and infrastructure sectors, respectively.

A report by news agency Reuters said India’s JSW Steel Ltd had acknowledged that a weaker steel market coupled with a drop in global demand and a local slowdown could impact the turnaround time for its newly acquired Monnet Ispat assets. The report, though, added that JSW’s chairman downplayed any substantial impact on financials.

On the sidelines of the company’s annual meeting, Sajjan Jindal, co-chair of JSW Steel Ltd, said his company had always said it could take about two years to turn around and it would try and do it within that time frame.

He called the present slowdown in the automotive sector as “temporary” and was hopeful the sector will bounce back.

Another Reuters report, as published on the Al Jazeera website, said the auto industry has sought tax cuts and easier access to financing for both dealers and consumers to revive the industry.

The report quoted Automotive Component Manufacturers Association of India (ACMA) Director-General Vinnie Mehta as saying the sector was experiencing a “recessionary phase.”

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India’s automobile sector employs over 35 million people, directly and indirectly, according to the report.

The Raw Steels Monthly Metals Index (MMI) fell one point this month for an August reading of 74.

Small price increases for some metals did not outweigh a few steeper price drops, bringing the index down for the month.

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U.S. steel prices seemed to find a bottom recently (at least for HRC, CRC and HDG). Plate prices stopped dropping and moved sideways with the most recent price changes.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese HRC and CRC Prices Move Sideways

Source: MetalMiner data from MetalMiner IndX(™)

Chinese HRC and CRC prices continued to move sideways this month. However, CRC prices showed more strength, with another modest increase in early August, while HRC prices declined slightly as August started, reversing the recent mild uptick that occurred in July.

U.S. HRC and Chinese HRC Prices Start to Diverge Again

Source: MetalMiner data from MetalMiner IndX(™)

Since peaking in mid-2018, the spread between U.S. and Chinese HRC prices began to narrow. The spread hit its narrowest point in about 1.5 years last month when it dropped to a difference of around $37/st — the third-lowest value since January 2014.

The recent increase in U.S. prices increased the spread once more, but it remains low at just $70/st. This does not yet reflect the recent devaluation of China’s currency back to the range of CNY 7-to-1, which should further increase the steel price spread (unless Chinese prices start to rise to a greater extent than U.S. prices).

Source: MetalMiner data from MetalMiner IndX(™)

Chinese and U.S. CRC prices moved more similarly, overall, with both prices increasing again of late.

Similar to HRC, the spread between prices closed quite a bit, but a larger spread remains for CRC. The spread between the two CRC prices currently measures $158/st, up slightly from around $149/st last month — the lowest values seen since late 2017.

What This Means for Industrial Buyers

The global steel prices tracked by the index once again showed mixed performance this month.

The U.S. Midwest HRC futures spot price increased slightly, turning around after last month’s decline. The U.S. Midwest HRC futures 3-month price increased once again this month. China saw mixed price signals, with some prices up and others down.

With prices giving sustained mixed signals, industrial buying organizations seeking more pricing guidance should try a free two-month trial of our Monthly Metal Buying Outlook report.

Buying organizations will want to read more about longer-term steel price trends can do so with the Annual Outlook.

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Actual Raw Steel Prices and Trends

Prices in the index showed mixed performance this month.

Korean prices showed a clear drop. Korean standard scrap steel prices dropped by 8.3% to $122/st and pig iron prices fell by 2.6% to $332/st.

Chinese price movements remain mixed. Chinese steel slab prices increased the most (by 3.2% to $489/st). Chinese HRC prices increased by 1.3% to $479/st.

Chinese steel billet decreased by 2.7% to $470/st and coking coal prices dropped by 1.1% to $278/mt. Chinese iron ore prices edged down slightly, by less than 0.5%.

U.S. shredded scrap prices fell by 6.2% to $257/st, while U.S. Midwest futures 3-month price increased by 3.2% to $619/st.

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LME billet 3-month prices dropped 2.7% $268/mt.

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This morning in metals news, Vale’s resumption of activities boosted its iron ore production to its highest level in nine months, ArcelorMittal released its second-quarter financial results and a U.S. judge blocked a planned copper project in Arizona.

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Vale Production Surges in July

After Brazilian miner Vale resumed production at its largest mine in the Minas Gerais state, its iron ore production soared 16.6% in July from the previous month, Reuters reported.

Earlier this year, a fatal tailings dam breach at Vale’s mine in Brumadhinho impacted operations and helped send iron ore prices upward.

ArcelorMittal Releases Q2 Results

Steelmaker ArcelorMittal reported Q2 2019 EBITDA of $1.6 billion and 1H 2019 EBITDA of $3.2 billion, which was down 42.6% on a year-over-year basis.

Second-quarter shipments of steel and iron ore rose 4.8% and 6.1%, respectively, on a year-over-year basis.

“Given weak demand and high import levels in Europe, the Company has taken steps to align its European production levels to the current market demand,” the steelmaker said. “As a result of previously announced European production curtailments, approximately 4.2Mt of annualized production curtailment is scheduled for 2H 2019.”

Judge Blocks Arizona Copper Project

A U.S. judge blocked a copper project previously approved by the U.S. Forest Service, the Associated Press reported.

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The previously approved project included plans for a $1.9 billion mine in Arizona’s Coronado National Forest.

Piped water to all – a new Government of India (GoI) multimillion-dollar scheme announced recently — comes as a pleasant surprise to India’s steel industry.

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Called the “Nal se Jal” scheme (meaning “water connection to all”), this flagship project aims to provide piped water connection to every household by 2024.

Experts are of the opinion that the new scheme will increase the domestic steel demand, which means massive investments in the sector, according to the Sunday Guardian Live.

Because of its durability and greater life span, steel is ideal for water pipelines and other infrastructural requirements for the flagship scheme.

A news report in Live Mint quoted a report by Bank of America Merrill Lynch, which has estimated that India needs to put in $270 billion (about ₹18.5 trillion) over the next 5-15 years to meet its ambitions of piped water supply to all homes by 2024, cleaning the Ganges River, interlinking rivers to redirect water to water-scarce regions and irrigation projects.

Some experts, though, feel the scheme is too ambitious and may not take off.

As of now, only about 18% of rural households in India have piped water supply.

For one, how the scheme will be financed is something the GoI is still trying to figure out.

One option it is toying with is to take part of the investments from consumers in rural India by a nominal monthly fee, according to a report by The Print.

But according to Indian brokerage firm JM Financial, private sector investment will be a must if the GoI wants to go ahead.

The minister in charge has gone on record to state the government was examining the public-private partnership model for water infrastructure projects. This includes BOT (build, operate and transfer), DBOT (design, build, operate and transfer) and the hybrid annuity model (HAM).

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The JM Financial report said the scheme will likely lead to a massive jump in investments in water and sanitation. These will be made in various verticals, such as pipes, EPC, water treatment pumps, and valves and cement, the Hindu Business Line reported.

Global crude steel production reached 925.1 million tons for the first six months of the year, marking a 4.6% increase compared with the same period in 2018, the World Steel Association reported.

Year-over-year production growth has fallen each of the last two months, from 6.4% in April to 5.2% in May.

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Production in Asia reached 660.2 million tons, up 7.4% compared with 1H 2018. North American production ticked up 1.4% to 60.1 million tons, while E.U. production fell 2.5% to 84.7 million tons. The Commonwealth of Independent States (CIS) bloc produced 50.5 million tons, about flat with production levels in 1H 2018.

Production in China continues to remain elevated over 2018 levels. In June, China churned out 87.5 million tons, up 10.0% on a year-over-year basis. However, June production fell from May’s 89.1 million tons.

Worth monitoring is the key steelmaking material, iron ore, which has soared to five-year highs this year.

“Steel prices had been supported by environmentally promoted steel mill closures, restricting supply as government-supported housing construction drove demand,” MetalMiner’s Stuart Burns explained Tuesday. “However, although anti-pollution measures are expected to continue, it will require further stimulus to keep the housing market running at the current pace.”

India’s production rose 4.0% to 9.3 million tons of crude steel in June 2019. As noted by MetalMiner’s Sohrab Darabshaw, Tata Steel announced plans to increase its annual crude steel capacity to 30 million tons by 2025, up from the current 20 million tons.

Japan’s production fell 0.4% on a year-over-year basis, down to 8.8 million tons, while South Korea’s crude steel production fell 2.6% to 6.0 million tons.

U.S. production reached 7.3 million tons in June, up 3.1% year over year. U.S. steel capacity utilization reached 81.1% as of July 20, according to the American Iron and Steel Institute (AISI).

In Europe, Germany’s production fell 5.8% to 3.4 million tons, while Italy saw a 2.5% decline to 2.1 million tons. France’s production rose 3.4% to 1.3 million tons, while Spain’s production ticked up 2.3% to 1.2 million tons.

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Steel production in Turkey, Ukraine and Brazil fell in June on a year-over-year basis.

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This morning in metals news, U.S. and Chinese trade negotiators resumed talks this week, Goldman Sachs is pessimistic about copper supply and smaller Chinese steel mills are shaking off anti-pollution laws in an effort to compete against larger steel firms in the country.

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Trade Talks

After trade talks fell apart in May despite significant optimism, China and the U.S. are back at the negotiating table this week.

Negotiators are meeting in Shanghai for the latest round of trade talks aimed at ending the escalation of tensions that have boiled over throughout the last year.

White House economic adviser Larry Kudlow downplayed the resumption, telling CNBC that he did not expect any “grand deal” coming out of this week’s Shanghai talks.

Copper Supply Troubles

Goldman Sachs is bearish on the copper supply market ahead, Bloomberg reported.

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According to the report, copper treatment charges in China have fallen to their lowest level in seven years, which could engender production cuts.

China’s Small Steel Mills

Smaller steel mills in China are bypassing environmental regulations aimed at stemming pollution in the country, Reuters reported.

According to the China Iron and Steel Association (CISA), smaller steel firms raised production by approximately a quarter through the first five months of the year, compared with 6.2% among CISA’s larger members.

The U.S. imported 13% less steel in the first half of 2019 compared with the first half of 2018, the American Iron and Steel Institute (AISI) reported recently.

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Through the first six months of the year, U.S. total steel imports reached 15.62 million net tons, down 12.7% on a year-over-year basis. Meanwhile, finished steel imports reached 11.68 million net tons, down 16.7% year over year.

Total steel imports in June reached 2.02 million tons, down 2.5% from the May total. June finished steel imports reached 1.71 million net tons, down 8.3% from May.

Finished steel import market share hit 20%, continuing the general flatlining of the figure since market share spiked at 25% in January. Estimated import market share for the first six months of the year is 21%.

By product type, several products experienced big import increases in May compared with April: sheets and strip all other metallic coatings (up 100%); heavy structural shapes (up 98%); reinforcing bars (up 56%); hot rolled bars (up 17%); and standard pipe (up 15%).

In addition, line pipe imports in the year to date increased 11% compared with the same period in 2018.

South Korea led the way in terms of offshore exports to the U.S.

Offshore imports came in at:

  • South Korea (163,000 NT, down 44% from May)
  • Japan (112,000 NT, down 9%)
  • Germany (100,000 NT, up 56%)
  • Taiwan (86,000 NT, up 7%)
  • Vietnam (59,000 NT, down 3%)

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Import totals for the first six months of the year were:

  • South Korea (1.45 million NT, down 17% vs. the same period in 2018)
  • Japan (723,000 NT, down 2%)
  • Germany (617,000 NT, down 7%)
  • Taiwan (522,000 NT, down 7%)
  • Vietnam (427,000 NT, down 16%)