Steel

earnings sign

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While the first half of 2020 posed significant challenges for metals manufacturers and end users alike, some firms have showed signs of recovery in the ensuing months and into 2021.

In the second quarter, steel demand suffered. Automotive manufacturers idled production in North America for a period of about two months last year, beginning in the tail end of the of the first quarter.

Nucor forecasts strong Q1 2021

The Charlotte-based steelmaker said it expects its first-quarter earnings could exceed $900 million.

By comparison, Nucor reported net earnings of $20.3 million in Q1 2020. In Q2 2020, the steelmaker reported net earnings of $108.9 million.

“We are encouraged by positive economic trends and the robust demand we are seeing across our markets,” Nucor President and CEO Leon Topalian said. “We currently expect our first quarter 2021 results to significantly exceed Nucor’s previous record for quarterly net earnings, set in 2008. As we move through 2021, we remain focused on building on our momentum, meeting and exceeding our customers’ needs, and delivering sustainable value creation for Nucor stockholders.”

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Rising prices

Earlier this month, Nucor Tubular Products announced a price hike in a letter to customers.

The company announced an at least 12% hike for sprinkler pipe products. In addition, A53 products would rise by at least $140.

“This increase is a result of rising raw material costs, strong demand, and volatility of transportation costs,” Nucor said in the price increase notice. “New orders, quotes and contracts not previously confirmed by Nucor will be subject to this increase.”

Overall, this quarter will likely prove much stronger than Q4 2020.

“The Company’s sheet, plate, bar and structural mills continue to forecast increased profitability in the first quarter of 2021 as compared to the fourth quarter of 2020,” Nucor reported. “Realized prices and shipment volumes have increased for Nucor’s steel mills in the first quarter as compared to the fourth quarter of 2020.”

In addition, Nucor said rising raw materials prices will boost the performance of that segment. Nucor owns the David J. Joseph Company, a scrap brokerage. The steelmaker also produces direct reduced iron (DRI), a steelmaking input.

US steel price gains

US steel prices have continued to rise well into 2021.

Hot rolled coil (HRC) closed Wednesday at $1,156 per short ton, or up 9.78% from a month ago. Meanwhile, cold rolled coil (CRC) is up 15.24% to $1,331 per short ton. Hot dipped galvanized (HDG) is up 11.29% to $1,439 per short ton.

Plate price gains have not been as significant; however, plate is up 5.28% to $1,036 per short ton.

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The Raw Steels Monthly Metals Index (MMI) increased for the ninth consecutive month, rising by 0.5% as US steel prices continued to rise.

Buying organizations should continue to buy as needed, as prices remain at all-time highs.

February 2021 Raw Steels MMI chart

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US steel market

Universal Steel Products, along with four other American steel importing companies, challenged the 25% steel tariff imposed by former President Donald Trump in 2018 under Section 232 of the Trade Expansion Act of 1962.

On Feb. 4, the United States Court of International Trade moved to dismiss the plaintiffs’ cross-motion for partial summary judgment.

Meanwhile, President Joe Biden reinstated tariffs on aluminum imported from the UAE. Trump had rescinded the tariffs on his last day in office. Biden’s decision seems to signal that the new administration sides with primary producers in view of ongoing global overcapacity.

Tariff supporters argue it promotes steel investment, newer technology, increases domestic market share, provides security of supply for steel customers and generates employment. Meanwhile, detractors believe the tariffs directly impact US steel prices.

The graph below, however, shows the correlation between US steel prices and tariffs is not particularly strong.

Rather, the bullish market drives steel prices (as it did in 2018).

Today, steel prices have increased on the back of a bull market. In addition, capacity reductions have led to material shortages, as we see now.

HRC and CRC price comparison chart

US HRC and CRC prices (MetalMiner Insights data)

Chinese steel prices decline

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import tariff

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This morning in metals news: the Coalition of American Metal Manufacturers and Users called on the Biden administration to rescind the Section 232 steel and aluminum tariffs; meanwhile, the Energy Information Administration forecasts US energy-related CO2 emissions to rise after the mid-2030s; and, lastly, US President Joe Biden spoke this week with Chinese President Xi Jinping.

CAMMU urges Biden to ends Section 232 tariffs

The Coalition of American Metal Manufacturers and Users (CAMMU) sent President Joe Biden a letter Wednesday urging him remove the Section 232 tariffs on steel and aluminum.

In 2018, former President Donald Trump imposed the tariffs of 25% for steel and 10% for aluminum.

“By taking action to terminate the Trump tariffs, your Administration can prevent U.S. manufacturers from shutting down production lines, laying off workers, and potentially even closing their doors,” CAMMU said in the letter. “By contrast, the ripple effects of allowing these Section 232 tariffs to remain are substantial. Our member companies report not only record steel prices, but also delivery times stretching 12-16 weeks, causing significant disruptions.”

As we noted previously, however, Biden reversed Trump’s decision to rescind the tariff on aluminum from the UAE (a move he made on his final day in office).

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Evraz company name on phone screen

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Crude steel production at Evraz’s North American assets dropped 15.1% year over year in 2020. The drop was due mainly to the COVID-19 pandemic’s impact on the global economy, the Russian group noted.

Evraz output in North America drops

Production for the 12 months totaled 1.58 million metric tons from slightly over 1.86 million tons over the same time in 2019, Evraz stated Jan. 29.

“Turbulence in the oil and gas markets led to lower demand, resulting in decrease of production volumes at Evraz North America,” the group noted.

Increased demand for flat-rolled and construction products drove up Q4 crude production by 27%. Production rose to 423,000 metric tons from 334,000 metric tons in Q3 2020.

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Evraz in North America

Evraz North America has six plants throughout the United States and Canada. The wholly owned subsidiary can produce up to 2.3 million metric tons per year of crude steel via electric arc furnaces at Pueblo and Regina in Colorado and Saskatchewan, respectively.

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Western European steel factory

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Prices for hot rolled coil in Western Europe appear to be moving away from increases seen in late 2020, as steelmakers there and in Central Europe restart their own crude production and the Lunar New Year in China approaches, market sources told MetalMiner.

“It looks they are more decreasing, rather than rising,” one trader said.

Hot rolled coil prices cool

Some producers have indicated in the past two weeks prices as high as €750 ($900) per metric ton EXW for Q3, traders said. However, they did not say if any transactions have yet occurred at those levels.

The latest offers are up by 25% from the €600 ($720) that Western European mills sought in early December for February rolling and March delivery, due then to higher demand and lower availability (including in the auto sector).

A lack of available transistors needed for vehicles has also prompted automakers to warn of production delays at European, North American and Chinese operations, also impacting demand for the flat-rolled product, sources and news reports noted.

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metals prices

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When discussion of metals markets — indeed, any markets — considers likely price trends, it nearly always starts off looking in the rear-view mirror.

Last year’s copper market suggests a bull market driven by vociferous Chinese demand. Imports surged after China relaxed its spring lockdown. Prices rose strongly, up some 48% on the LME from March lows, led by speculative interest (particularly on the SHFE).

Bulls would have you believe we have much further to go.

But 2021 is not 2020.

The combination of stimulus and demand catchup will not be the feature in 2021 that it was in 2020. That will be true in China and the wider global economy.

Metals prices in 2021: what’s next?

Reuters recently reported the consensus price for copper this year is US $7,600 per metric ton, up 23% from last year’s consensus. However, it’s some $200 per metric ton below the current price.

However, on the other hand, 2021 is not likely to show the volatility we saw last year. Major black swans like a killer new mutant strain emerging excepted, expectations are prices will trade in a relatively narrow band this year compared to last.

Furthermore, 2022 is likewise expected to be much more stable. Still some years away from major electrification demand outpacing copper supply, 2022 is forecast to see a median price of US $7,625 per metric ton.

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Price movements elsewhere

Accepting that the one thing you can be sure of with forecasts is they will be wrong, the underlying rationale has some merit because it applies to pretty much the whole base metals complex. Recent price movements suggest it applies to steel, as well.

Supply is recovering fast. While exchange stocks do not necessarily reflect this across all metals — some, like aluminum and zinc, have far larger off-market stocks — a realization that they are there will temper expectations of higher prices.

As economies recover from 2020 and the impact of ongoing lockdowns, Chinese demand (equivalent to roughly half the world’s output of many metals) will likely ease as the tailwinds of the stimulus measures wane and the economy pivots more toward consumption. China cannot afford to allow continued rising debt levels or stoke its hot property market. Regarding the latter, the authorities have already signaled their intent to damp down demand.

Local distortions may still support local markets – to the extent President Joe Biden’s “Buy American” plan may support local producers of steel and, in particular, should be beneficial for North American USMCA steel mills – but such price premiums will be relative to the rest of the world. In short, they won’t be sufficient to send the market in the opposite direction.

Reuters reported all the base metals, with the exception of tin, will likely be in surplus this year and next.

If there is one silver lining for metals consumers to look forward to in 2021, apart from an effective jab, it is that prices may be more stable. Furthermore, they will likely be more predictable and, for some, a little lower than they have been of late.

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India and US flags

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It is too early to talk of the direction US-India relations will take under US President Joe Biden’s administration.

But Indian trade circles are keeping a close eye on trade-related developments with a hopeful eye.

Hopes for better US-India relations

Much of the hope for better US-India relations focuses on the desire that the US will focus more on its bilateral ties with India because of the former’s strained relation with China, and why the US would benefit from such a move.

China will be on the new US administration’s mind as it assesses the Indo-US trade relationship. For now, though, the Biden administration has made it clear it would not considering any new free trade deals. Furthermore, it’s unclear whether the Biden administration will maintain or rescind existing Section 232 steel and aluminum tariffs.

The two countries have a lot going on together. The two have a robust bilateral trade. Through the first 11 months of 2020, the U.S. imported goods from India worth $46.3 billion and exported about $24.6 billion in goods. In addition, the countries have cooperation in defense and an ever-increasing reliance on each other in the field of energy.

The appointment of four Indian-Americans to senior posts in the Department of Energy (DOE) is being seen as a positive. Energy expert Tarak Shah was appointed as the department’s chief of staff, making him the first Indian-American to serve in the position. The DOE said the new leaders will direct policy and enact Biden’s vision for “bold action on the climate crisis.”

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cars on the road in Shanghai, China

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Just about every review of growth in China — of steel prices or of iron ore demand — contains reference to China’s property market.

Few countries in the world have a property sector that plays such a large and dynamic role in the country’s GDP. Furthermore, few have one that causes such concern among a minority of economists that obsess over the risks the sector poses.

So, a detailed analysis in The Economist is a welcome insight into the scale and scope of the market that underlines why it is such a significant driver of not just GDP but raw material prices and seaborne trade.

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China’s property market and its massive scope

To cite The Economist, every year China starts building about 15 million new homes.

That’s more than quintuple the number in America and Europe combined.

The property sector, both the direct impact of all the construction and its indirect effect on everything from concrete to curtains, accounts for a quarter of China’s GDP. That explains: a) why a runaway property market is such a driver of growth and b) why Beijing is at such pains to progressively control the market. Left unchecked, it poses a huge potential risk.

Chinese real-estate developers are on the hook for more than $100 billion in bond repayments during 2021 alone, according to Moody’s. For the world as a whole, roughly one-tenth of outstanding bank loans to non-financial clients has gone to China’s property sector, whether as financing for developers or mortgages for homebuyers.

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China story steel production

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After global crude steel production rose for four consecutive years, output declined last year, the World Steel Association reported Tuesday.

Global crude steel production drops 0.9% in 2020

Global crude steel production fell by 0.9% in 2020 compared with 2019, the World Steel Association reported.

Production had increased every year from 2015-2019.

Output last year totaled 1.86 billion tons, down from 1.88 billion tons in 2019.

Mirroring its economic recovery compared with the rest of the world, China’s steel production remained strong compared with the rest of the world. China’s output rose from 1.0 billion tons in 2019 to 1.05 billion tons in 2020.

As such, China’s share of global output jumped from 53.3% to 56.5%.

India and Japan, the No. 2 and No. 3 steel producers, respectively, both saw their output decline in 2020. India’s fell by 10.6%, while Japan’s dropped by 16.2%.

Among the top 10 steel producers in the world, only China, Russia, Turkey and Iran posted year-over-year growth.

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earnings sign

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This morning in metals news: Cleveland-Cliffs released its preliminary Q4 2020 results; demand for sustainable aluminum is rising in the maritime industry; and U.S. steel prices continue to rise.

Cleveland-Cliffs revenue jumps

Cleveland-Cliffs reported Q4 2020 revenues of approximately $2.2 billion to $2.3 billion.

The total marked a 320% year-over-year jump.

Meanwhile, the firm reported EBITDA of $280 million to $290 million, or up 150% year over year.

Furthermore, the firm tallied steel sales volume of 1.9 million net tons.

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Demand for sustainable aluminum

Oslo-based Norsk Hydro explained that demand for sustainable aluminum products in the maritime industry is on the rise.

“We see the maritime industry has increased its focus on sustainable products, material selection and design in recent years,” said Thomas B. Svendsen, market manager in Hydro. “Electric ferries carry heavy batteries and need lighter materials. The CO2 footprint in the industry needs to be reduced and recycling of material has therefore gained traction. Aluminium is a good fit.”

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