Steel

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U.S. steel mills achieved a capacity utilization rate of 80.3% for the year through Jan. 26, according to a recent report by the American Iron and Steel Institute (AISI).

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Year-to-date production hit 70.07 million tons, according to the AISI report, up 10.9% from the 6.37 million net tons during the same period last year. Capacity utilization rate for the same period in 2018 was 73.6%.

For the week ending Jan. 26, production hit 1.92 million tons, up 12.1% from the same week in 2018. In addition, production for the week ending Jan. 26 was up 0.5% from the previous week.

By region, the Great Lakes led the way for the week ending Jan. 26 with production of 724,000 tons, followed by the South (691,000), Northeast (224,000), Midwest (205,000) and West (78,000).

On Monday, President Donald Trump touted his administration’s tariffs.

“Tariffs on the ‘dumping’ of Steel in the United States have totally revived our Steel Industry,” Trump tweeted. “New and expanded plants are happening all over the U.S. We have not only saved this important industry, but created many jobs. Also, billions paid to our treasury. A BIG WIN FOR U.S.”

According to a World Steel Association report late last week, the U.S. produced 86.7 million tons of crude steel in 2018, up 6.2% compared with 2017.

Last year, steel prices surged to more than seven-year highs, riding the boost from the Section 232 tariff implementation.

However, as MetalMiner’s Irene Martinez Canorea noted last week, steel prices — except for plate prices — have been trending downward since August.

Chinese steel prices have also been stuck in a downtrend.

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“Chinese steel prices have fallen since September 2018,” Martinez Canorea wrote. “Steel prices have been softer in China this year, driven by signals of weaker demand and a slower manufacturing index.”

According to a World Steel Association report, global crude steel production increased 4.6% last year compared to 2017.

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Crude steel production increased in every region except the E.U. E.U. production declined 0.3% year over year.

Overall, production growth slowed from the 6.3% year-over-year increase in 2017.

Global steel production in 2018 reached 1,808.6 million tons (MT). Asia produced approximately 70% of that total at 1,271.1 MT, up 5.6% year over year. China produced the bulk Asian production at 928.3 MT, marking a 6.6% year-over-year increase.

China’s piece of the global steel production pie increased from 50.3% in 2017 to 51.3% in 2018.

India’s crude steel production jumped 4.9% to 106.5 MT. Of note, India surpassed Japan as the second-largest steel-producing country in the world last year.

Japan produced 104.3 MT in 2018, down 0.3% compared to 2017. South Korea produced 72.5 MT of crude steel in 2018, an increase of 2.0% compared to 2017.

As mentioned, E.U. production fell 0.3%, down to 168.1 MT of crude steel in 2018. Germany’s production fell 2.0%, down to 42.4 MT. Italian production rose 1.7% to 24.5 MT. France’s production fell 0.7%, while Spain’s production fell 0.1%.

North American production hit 120.5 MT, up 4.1%. U.S. steelmakers, buoyed by the Trump administration’s Section 232 action, churned out 86.7 MT, a 6.2% jump from 2017.

The Commonwealth of Independent States (CIS) produced 101.3 MT, up 0.3%. Russia produced 71.7 MT of that total, marking a 0.3% year-over-year increase. Ukraine’s production fell 1.1% to 21.1 MT.

South America saw its production tick up 1.3% to 44.3 MT. Brazil accounted for 34.7 MT of that total, good for a 1.1% increase.

The Middle East produced 38.5 MT of crude steel in 2018, up 11.7% from 2017. Iran accounted for 25.0 MT in 2018, up 17.7%.

Turkey’s crude steel production, in what was a tumultuous 2018 for the Turkish steel sector, hit 37.3 MT, down by 0.6%. Amid a diplomatic row with the U.S. over the detention of American pastor Andrew Brunson, in August 2018 the Trump administration doubled its Section 232 tariffs on steel and aluminum vis-a-vis Turkish imports (raising the rates to 50% and 20%, respectively).

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By country, the top 10 steel-producing countries of 2018 were:

  1. China: 928.3 MT
  2. India: 106.5 MT
  3. Japan: 104.3 MT
  4. U.S.: 86.7 MT
  5. South Korea: 72.5 MT
  6. Russia: 71.7 MT
  7. Germany: 42.4 MT
  8. Turkey: 37.3 MT
  9. Brazil: 34.7 MT
  10. Iran: 25.0 MT

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This morning in metals news, copper slides, one business says it has been impacted by the Trump administration’s Section 232 steel tariff and a November train derailment had a major impact on miner BHP’s production totals.

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Copper Slides

The price of London copper continues to fall as the Chinese economy’s growth slows, Reuters reported.

LME copper was down 0.2% Tuesday, while the most-traded SHFE copper contract dropped 0.8%, according to the report.

Tariff Effects

Some U.S. companies have been vocal about what they perceive to be the negative impact of the Trump administration’s metals tariffs. For example, Big Three automaker Ford last year said the tariffs would cost it $1 billion in profits.

Similarly, according to a FOXBusiness report, one robotics company with $100 million in annual sales is facing some tough decisions due to the tariffs (according to the company’s CEO).

BHP Production Numbers

In reporting its production figures, the impact of a November train derailment shows in miner BHP’s numbers.

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According to an ABC News report, the November train derailment in Western Australia cost the firm U.S. $600 million in iron ore production.

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Domestic steel prices have been in a downtrend since August, when prices started to show the first signs of weakness.

All forms of steel, except plate, have showed downward price momentum.

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Source: MetalMiner data from MetalMiner IndX(™)

Historically, steel prices move lower during Q3 and part of Q4. When the budgeting season starts, mills begin to raise steel prices.

For the past three years, steel prices have increased at the end of Q1, just a little delayed from the general Q4 increase.

However, this year the price increase remains in hibernation.

Steel prices continue to move lower and lead times have not increased. In fact, lead times remain the shortest in a year.

Therefore, steel price increases do not seem justified for HRC, CRC and HDG.

Plate Prices — Why Are They Moving Differently?

Meanwhile, plate prices have followed their own trend.

Plate prices have remained well-supported so far. While other forms of steel have seen price declines since August, plate prices continue to trade sideways.

In fact, plate prices have increased during this time.

Source: MetalMiner data from MetalMiner IndX(™)

Plate prices in general have less volatility than other forms of steel. Plate prices often trade sideways in one direction for a long time, then suddenly shift and move into a different trend.

Lead times combined with strong demand have supported plate prices. Most steel producers see lower automotive numbers, but demand from plate-consuming industries remains stronger.

While all the other steel forms have had shorter lead times during the year, with increasing domestic capacity utilization, plate lead times continue to lengthen.

Chinese Steel Prices

The 800-pound gorilla, China, offers a window into what may happen to domestic prices.

Chinese steel prices have fallen since September 2018. Steel prices have been softer in China this year, driven by signals of weaker demand and a slower manufacturing index.

Source: MetalMiner data from MetalMiner IndX(™)

What This Means for Industrial Buyers

Current domestic steel prices appear to be in a downtrend.

Adapting the right buying strategy becomes crucial to reducing risks. Only the MetalMiner monthly outlooks provides a continually updated snapshot of the market from which buying organizations can determine when and how much of the underlying metal to buy.

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

For more information on how to mitigate price risk year-round, request a free trial to our Monthly Metal Buying Outlook.

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In a late December report, the Indian government said it forecast the Indian automotive sector to attract between U.S. $8 billion and $10 billion in local and foreign investment by 2023.

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The Year End Review 2018 by the Ministry of Heavy Industries & Public Enterprises pointed out the sector had attracted $16.5 billion in foreign direct investment (FDI) between April 2000 and December 2016.

But the 2023 target may not be met if the government does not resolve the contentious issue of steel import rules soon.

Last August, the Indian Steel Ministry announced import rules for high-grade steel products, stipulating that foreign steelmakers must get Indian certification for high-grade steel products being used by Indian manufacturers. The Feb. 17 is fast approaching, but automakers have already registered their protests, saying they will not comply as they needed more time to do so.

The auto industry has dubbed the import rules as stringent, and though it is for specific high-grade steel products coming in from Japan and South Korea, they are used for vital auto components.

A Reuters report said India’s Heavy Industries Minister had written a letter in early January to his Steel Ministry counterpart, pointing out that the shipments of the auto component industry had started getting impacted. He voiced concerns in the letter that this “posed a significant risk of production stoppage of the whole automobile industry in the immediate future.”

Another issue which the minister pointed out was that if the government were adamant about imposing the new tax, auto manufacturers would simply stop importing steel and import the entire component itself, which would be detrimental to the “Make In India” plans of the government.

At a meeting mid-January between automakers’ representatives and government officials, the former pointed out that the new steel import norms were “a unrealistic protectionist measure” aimed at encouraging local steelmakers that could slow down manufacturing. Indian steelmakers did not manufacture special-grade steel, which is why Indian auto companies looked to other countries to fulfill this need.

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Indian automakers are seeking a year’s extension to comply with the new norms; now the ball is in the government’s court.

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This morning in metals news, aluminum producer Alcoa Corporation reported its fourth-quarter and full-year 2018 results, India is considering a higher iron ore import duty and Shanghai steel futures moved up.

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Alcoa Reports 4Q Earnings

Pittsburgh-based aluminum producer Alcoa Corporation reported its fourth-quarter and full-year 2018 earnings this week, reporting adjusted net income of $125 million, excluding special items, for the final quarter of 2018.

The 4Q net income total was up from $119 million in the third quarter but down from $195 million in 4Q 2017.

For 2018 as a whole, the company reported adjusted net income excluding special items of $675 million, up from $563 million in 2017.

“Despite sequentially weaker commodity prices, we had a strong fourth quarter with higher profits in our Bauxite and Alumina segments,” President and CEO Roy Harvey said. “With the help of higher market prices earlier in the year, we increased annual profits, addressed liabilities, significantly strengthened our balance sheet, and began returning cash to stockholders. With markets likely to remain dynamic in 2019, we will focus on what we can control to continue improving our operations, addressing challenges with agility, and making the most of opportunities in the year ahead.”

In 2019, Alcoa projects a global aluminum deficit between 1.7 million and 2.1 million metric tons. In addition, Alcoa reported the global alumina market came in at a deficit of 0.6 million metric tons.

“In 2019, the Company expects the alumina market to move to a surplus that is projected to range between 0.2 million and 1 million metric tons, which assumes ongoing, third-party supply disruptions in the Atlantic region,” Alcoa states. “The projected alumina surplus is driven by China, where refining expansions are expected to outpace demand growth from smelting.”

India Considers Hiking Iron Ore Duty

According to a report from Creamer Media’s Mining Weekly, the Indian government is considering an increase to its iron ore import duty.

Per the report, domestic industry has lobbied the government to increase the current 2.5% duty on imported iron ore.

Shanghai Steel Picks Up

Global steel prices have lagged of late, but Thursday was a positive session for Shanghai steel futures, Reuters reported.

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Per the report, the most-traded rebar contract on the SHFE ticked up 0.8%, while hot rolled coil was also up 0.8%.

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Around the time that the Trump administration’s Section 232 tariffs on steel and aluminum were implemented last year, U.S. Commerce Secretary Wilbur Ross noted the administration’s goal of lifting steel and aluminum capacity to 80% (the level reflecting a healthy industry).

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Following the implementation of the tariffs, that figure gradually increased as domestic producers got a boost, with some even announcing smelter restarts (U.S. Steel’s Granite City steelworks being a prime example).

So, how have production levels fared to start the new year?

According to data released by the American Iron and Steel Institute (AISI), the steel capacity utilization rate through Jan. 12 reached 79.5%, up from the 73.6% posted during the same period in 2018.

Production in the year through Jan. 12 reached 3,231,000 net tons, according to the AISI report.

Meanwhile, for the week ending Jan. 12, capacity utilization hit 79.8%, with 1,891,000 net tons of steel produced in the week. Production for the week marked a 10.2% increase from the same week in 2018. In addition, production was up 0.8% in the week ending Jan. 12 compared with the previous week.

Production by region for the week ending Jan. 12 broke down as such (in thousands of net tons):

  • North East: 223
  • Great Lakes: 731
  • Midwest: 206
  • Southern: 654 
  • Western: 77 

U.S. steel prices across the board have seen their price momentum evaporate in recent months after hitting more than seven-year highs in 2018, buoyed by the Section 232 tariff. For instance, the U.S. HRC three-month price was $905 per short ton as of June 1, 2018. On Jan. 14, that price was $687 per short ton.

As MetalMiner’s Irene Martinez Canorea noted in her recent Raw Steels MMI report, steel prices appear to have entered a downtrend.

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“However, steel prices have showed slower momentum recently and prices appear to have started a sharp downtrend,” she wrote. “MetalMiner does not expect prices to increase in the short term, although mills may try to shore up prices with price increase announcements.”

Base metals traded higher at the beginning of January. However, momentum appears to be weaker once again.

The DBB index has shown weakness since June 2018, when it started this short-term downtrend. MetalMiner has recently revised its market outlook, advising buying organizations to closely follow how the index develops.

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DBB index. Source: MetalMiner analysis of Yahoo Finance

Since 2016, the DBB base metals complex has remained in a long-term trend (see the chart below). Base metal prices have skyrocketed since then but moved lower in 2018, when concerns about the Chinese economy started to appear.

DBB index long-term trend. Source: MetalMiner analysis of Yahoo Finance

A weaker Chinese economy will move demand lower. However, 2018 closed with the six base metals in global deficit. Supply and demand has not moved; therefore prices, mostly economic expectations and trading changes have driven base metal markets.

The Drivers

The DBB index comprises three base metals: aluminum, copper and zinc.

LME aluminum prices moved higher at the beginning of January, but prices did not breach the $1,970/mt level that acted as a support for most 2018. Prices being unable to breach that support level signals weakness for the base metal complex.

LME Aluminum prices. Source: MetalMiner analysis of FastMarkets

Both LME copper and LME zinc prices started to increase slightly at the beginning of January. Similar to aluminum, prices of both base metals fell. LME copper remains below the $6,000/mt level, which has served as the psychological ceiling for copper prices.

What This Means for Industrial Buyers

The base metals complex seems seems weaker. MetalMiner recently switched the long-term uptrend to a sideways trend.

Buying organizations may want to follow price dynamics closely, as well as each specific base metal price. Adapting the right buying strategy becomes crucial to reducing risks.

Only the MetalMiner Monthly Outlook reports provide a continually updated snapshot of the market from which buying organizations can determine when and how much of the underlying metal to buy.

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

For more information on how to mitigate price risk year-round, request a free trial to our Monthly Metal Buying Outlook.

With the January 2019 Monthly Metals Index (MMI) report, we can close the book on 2018 and what was a wild year in the world of metals and metals price movements.

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It was a book that closed with a pessimistic chapter for metals (and commodities in general), with many posting price declines as markets feel the effect of simmering trade tensions between the U.S. and China.

In our latest MMI report, you can read about all of the latest news and trends in our 10 metals subindexes: Automotive, Construction, Rare Earths, Renewables, Aluminum, Copper, Stainless Steel, Raw Steels, GOES and Global Precious.

A few highlights from this month’s round of reports:

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Read about all of the above and much more by downloading the January 2019 MMI Report below:

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This morning in metals news, exports from China to the U.S. took a dive in December, India will drive global steel demand in the coming years and Serbia has requested an exemption from the E.U.’s imminent quotas on steel imports.

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December Exports to the U.S. from China Drop

While the U.S. and China have kickstarted the new year with trade talks that have some feeling optimistic of a resolution, U.S. tariffs on $250 billion worth of Chinese imports appear to have had an effect on trade flows last month.

According to a report by the Associated Press, China’s exports to the U.S. fell in December, down 3.5% compared with December 2017.

For the year as a whole, however, China’s exports to the U.S. in 2018 were up 11.3%, according to the report.

Indian Steel Demand

India last year overtook Japan as the No. 2 steel producer in the world, according to data from the World Steel Association last month.

And per a recent post by Adam Szewczyk, head of data management for the World Steel Association, Indian steel demand will likely continue to drive production growth.

“According to worldsteel’s October Short Range Outlook, it is likely that India will also become #2 in steel use by the end of 2019 as its steel demand is expected to grow by 7.3%,” Szewczyk wrote.

“The Indian steel industry, after recovering from the twin shocks of demonetisation and the Goods and Services Tax (GST) reform, is one of the few bright spots for the world’s steel industry in what is forecasted to be a lower growth era.”

Serbia Requests Exemption From E.U. Steel Quota

With E.U. member states set to vote on new steel quotas Wednesday — in response to the U.S.’s implementation of a 25% steel tariff last year, pursuant to Section 232 of the Trade Expansion Act of 1962 — one country has already asked for an exemption.

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According to a Reuters report, Serbia, home to the Chinese-owned Zelezara Smederevo mill, has asked for an exemption from the quotas, which is expected to be approved by E.U. member states and will cover 26 product categories.

If approved, the safeguard measures would replace provisional measures passed in July 2018.