Steel

We wrote last month how China’s rapid recovery from the COVID-19 pandemic resulted in the country importing semi-finished products for which it previously had been self-reliant or even a net exporter for the last decade.

Some steel products and primary aluminum swung into becoming significant net inflows for the economy during the summer months.

But as we cautioned at the time, this was only expected to be a temporary phenomenon.

Are you on the hook for communicating the company’s steel performance to the executive team? See what should be in that report!

China’s steel flows recalibrate

Sure enough, although volumes are still down on this time last year, exports have picked up and imports have fallen.

In a recent post, Argus Media reported China’s steel exports in October rose by 5.2% from September to 4.04 million tons. Chinese mills shifted supplies to overseas markets, enabled — or forced, depending on your point of view — by falling domestic prices.

Summertime exports rose as domestic prices fell

Falling domestic prices in the summer aided Chinese steel mills’ ability to export so aggressively.

Domestic inventory levels rose and domestic crude steel production hit record levels of 3.09 million tons a day in September, in large part to meet domestic demand. Weakness in domestic steel prices suggests overoptimism by the steel mills, inevitably resulting in excess production leaking into export markets looking for a home.

Domestic Chinese steel prices have recovered since the summer as global steel prices have risen and imports have fallen.

As the global recovery has lifted demand and prices, mills in India and elsewhere have not felt the need to distress sell metal into China. In addition, the arbitrage window has narrowed.

Imports have therefore appeared less attractive to Chinese buyers and exports more attractive to mills. That is a trend we expect to continue through Q4.

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The Raw Steels Monthly Metals Index (MMI) increased by 5.4% this month, as U.S. steel prices continued to rise last month.

November 2020 Raw Steels MMI chart

Are you on the hook for communicating the company’s steel performance to the executive team? See what should be in that report!

U.S. and Chinese prices relation

U.S. steel prices continued to increase in October for the third consecutive month.

HRC, CRC, HDG and plate prices increased by 15.4%, 10.0%, 9.0% and 5.3%, respectively. As demand recovers, so have prices.

Wire rod, however, was the only form of steel that did not increase in price this month, as it instead remained flat.

In contrast, Chinese HRC, CRC and plate prices increased around 2% in October. Meanwhile, HDG prices remained flat throughout the month. For the second month,

U.S. prices surpassed Chinese HRC, CRC and HDG prices. No price arbitrage existed for Chinese buyers, as local prices were lower than imported prices. Chinese prices had a four-month uptrend before prices flattened. On the other hand, U.S. prices started their uptrend approximately 2.5 months ago.

For the past two years, Chinese prices have led U.S. prices. Will that relationship mean U.S. prices will flatten within the next month and half?

Domestic demand increases, supports U.S. steel prices

Steel demand in the U.S. seems to be getting stronger.

As we have reported for a few months now, U.S. automotive production is on the rise.

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mergers and acquisitions

iQoncept/Adobe Stock

This morning in metals news: Nucor Corporation has reached an agreement to acquire the Precoat Metals Corporation’s paint line facility in Armorel, Arkansas; Constellium recently released its Q3 financial results; and the U.S. HRC price continues to rise.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Nucor to buy Arkansas paint line facility

Nucor plans to acquire the Precoat Metals Corporation paint line facility in Armorel, Arkansas, the steelmaker announced recently.

“The paint line facility, located near the Nucor Steel Arkansas sheet mill campus, has a capacity of approximately 250,000 tons per year,” Nucor said in a release. “Nucor considered building a greenfield paint line before deciding to acquire the Precoat Metals facility.”

Constellium reports Q3 financial results

Aluminum product manufacturer Constellium reported Q3 net income of €20 million (U.S. $23.7 million) compared to net income of €1 million ($1.2 million) in Q3 2019.

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Continuing the theme of the last few months, the U.S. steel sector continued to make gains in capacity utilization last week.

We know there are many popular steel contracting indices. But you shouldn’t use them all the time — sometimes they can favor the seller over the buyer. See why! 

Steel capacity utilization rises to 69.7%

Per the American Iron and Steel Institute, U.S. steel mills recorded a capacity utilization rate of 69.7% during the week ending Oct. 24.

Raw steel production during the week totaled 1.54 million net tons. Meanwhile, production during the week ending Oct. 24, 2019, totaled 1.81 million net tons, at a capacity utilization rate of 78.0%.

On a year-over-year basis, last week’s output marked a 14.6% decline.

Meanwhile, production for the week ending Oct. 24, 2020, ticked up 0.5% from the previous week.  Production during the week ending Oct. 17, 2020, totaled 1.54 million net tons at a capacity utilization rate of 69.4%.

YTD output down 19.3%

In the year to date through Oct. 24, U.S. mills produced 64 million net tons of steel, down 19.3% year over year.

Output during the same period in 2019 totaled 79.4 million net tons at a capacity utilization rate of 80.1%.

Regional output

Broken down by region, output during the week ending Oct. 24, 2020, totaled:

  • Northeast: 135,000 net tons
  • Great Lakes: 563,000 net tons
  • Midwest: 171,000 net tons
  • Southern: 600,000 net tons
  • Western: 73,000 net tons

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U.S. steel imports dipped 8.3% from August to September, according to U.S. Census Bureau data released Monday.

Are you prepared for your annual steel contract negotiations? Be sure to check out our five best practices

U.S. steel imports in September

In September 2020, the U.S. imported 1.1 million metric tons on steel products, down from 1.2 million metric tons the previous month.

Meanwhile, for the year to date (through August), the U.S. imported 14.9 million metric tons of steel products, down 20.7% year over year.

During the same period last year, the U.S. imported 18.8 million metric tons.

During the year-to-date period, the largest commodity decrease came for oil country goods, according the Census Bureau.

“Increases occurred primarily in tin free steel, used rails, and light shaped bars,” the Bureau reported. “The largest country decreases occurred with Russia. Increases occurred primarily with Turkey, Brazil, and Mexico.”

Hot-dipped galvanized sheet, strip imports gain

The largest import category, hot-dipped galvanized sheet and strip, checked in at 173,010 metric tons in September.

The September figure marked a rise from the 157,503 metric tons imported in August. Furthermore, the U.S. imported 177,943 metric tons in the category in September 2019.

Meanwhile, in the No. 2 category, hot-rolled sheet imports reached 137,497 metric tons in September, up from 97,334 metric tons in August. However, the September 2020 total marked a decline from September 2019’s 151,330 metric tons.

U.S. representatives: no to Section 232 electrical steel tariffs

Finally, U.S. imports of electrical sheet and strip totaled 1,764 metric tons in September — not exactly the largest share of the import total.

Furthermore, the total marked a decline from the 2,758 metric tons imported in August.

Nonetheless, several Congressmen recently sent a letter to Secretary of Commerce Wilbur Ross asking the Trump administration not to impose Section 232 tariffs on imports of electrical steel.

Rep. Denver Riggleman (R-VA) sent the letter, which Reps. Bruce Westerman (AR-04), Ben Cline (VA-06), Morgan Griffith (VA-09), and Dan Bishop (NC-09) cosigned.

“The manufacturing industry employs millions of Americans, and there is no reason to impose unnecessary tariffs that would put over 15,000 transformer industry jobs at risk,” Riggleman said in a release. “Access to affordable electricity is a pillar of American life and commerce. We must keep American workers at the forefront of progress as the U.S. continues to dominate the global energy sphere.”

Meanwhile, back in May, the Department of Commerce launched a Section 232 investigation into laminations and wound cores for incorporation into transformers, electrical transformers, and transformer regulators. 

Under Section 232, the secretary of commerce has 270 days from the launch of an investigation to provide a report with findings and recommendations to the president, which sets up for a late January deadline.

Meanwhile, as for domestic options for electrical steel buyers, AK Steel is the only U.S. producer of grain-oriented electrical steel (GOES). ATI exited the U.S. GOES production market in 2016.

Not all contracting indexes are created equal. In a steel price spike scenario, finished product indexes can be detrimental to your strategy. Learn when you should use what kind of contracting mechanisms.

West European steelmakers are likely to see improvements in production and demand for their rolled products in 2021, following the adverse economic effects due to COVID-19 in 2020, industry watchers predicted.

Volatility is the name of the game. Do you have a steel buying strategy that can handle the ups and downs?

Better 2021 for Western European steelmakers

“Next year should be better if you take the view that this year was diabolical,” one analyst said about 2020. Steelmakers in France, Spain, Italy, Germany and Benelux saw aggressive production cutbacks in crude steel and rolled products as governments undertook containment measures and economies slowed.

“COVID-19 practically destroyed demand,” the analyst added.

Localized lockdowns — rather than the national ones that occurred earlier in the year around Europe, when it was the epicenter of the virus — will also help to boost activity, the analyst said.

“If people are out of their homes, then there is economic activity,” he noted.

The World Steel Association (worldsteel) also predicted in its Oct. 15 short-range outlook that crude steel production within the European Union would improve by almost 11% to 149 million tonnes in 2021. Meanwhile, the Brussels-based organization predicted 134 million tonnes of production for 2020.

The latter forecast reflected a 15.2% decrease from the over 158 million tonnes of crude steel poured in 2019, worldsteel noted.

“On the positive side, health systems are in a much better shape to tackle the pandemic now due to the lessons learnt from the first wave,” worldsteel noted.

Furthermore, there is a careful balance between “containing the virus and maintaining the viability of economies,” worldsteel added.

COVID uncertainty

However, worldsteel offered a caveat in its outlook.

“Added to this in the northern hemisphere there is uncertainty over how COVID-19 will evolve during the upcoming flu season which may have a serious impact on the outlook for 2021. The risk is tilted toward the downside. A W-shaped recovery cannot be ruled out and a full recovery in 2021 is unlikely,” the organization warned.

While worldsteel’s outlook did not break down the figures by country, it indicated in its September figures that West European steelmakers’ crude production for the first eight months of 2020 fell by 19.7% year over year to 59.1 million tonnes. Meanwhile, production totaled 73.5 million tonnes from Jan. 1-Aug. 31 in 2019.

Those same West European producers are now operating at below 60% of their crude production capacity, which is approximately 16 million metric tonnes per month, a second analyst said.

Western European steelmakers’ profits decline

Two major steelmakers with assets in Western Europe also reported notable drops in their production and in their financial results.

ThyssenKrupp’s Steel Europe subsidiary recorded a €706 million ($835 million) EBITDA loss for the first nine months of its 2020 fiscal year ending June 30. Meanwhile, it reported a €77 million gain ($91.1 million) over the same time in 2019.

Net sales were down 20% year over year to approximately €5.5 billion ($6.5 billion) from €6.3 billion ($7.5 billion), the report indicated.

Steel shipments by the German group saw a 12.8% decline in its steel shipments to 6.83 million tonnes from 7.82 million tonnes for the same time, the German group noted.

ArcelorMittal produces longs and flats at several locations in Western Europe. The steelmaker announced closures in March as part of its COVID containment measures in Italy, France, Spain, Germany, Belgium. Those closures continued in the second quarter of 2020, the Luxembourg-headquartered group said in its H1 report.

Total crude steel production in that group’s Europe segment for the first six months of 2020 fell to 16.1 million metric tonnes, down 30.5% year over year from 23.4 million metric tonnes.

European steel prices slide

Average steel selling prices in Europe were also down 11.2% to $636 per metric tonne from $716, ArcelorMittal said.

Prices for hot and cold rolled coil have already started rising since mid-2020, however, sources said.

“Restocking is happening, especially in the auto sector. This is pushing up prices, though it remains to be seen what happens,” the second analyst said.

Producers’ lower production levels will also strike a balance between supply and demand, the first analyst said.

Prices for hot rolled coil in West Europe now average about €491 ($581) per metric tonne EXW, up from lows of €433 ($512) in March.

The analysts questioned for how long any price increases would be sustainable. Many stockists were replenishing their lower volumes in the face of some renewed activity.

Stop obsessing about the actual forecasted steel price. It’s more important to spot the trend. See why.

scrap steel

smilekorn/Adobe Stock

This morning in metals news: global steel groups renewed calls for the Global Forum on Steel Excess Capacity to continue its work targeting steel overcapacity; Freeport-McMoRan released its Q3 financial results; and, finally, U.S. natural gas exports to Mexico have increased.

Stop obsessing about the actual forecasted steel price. It’s more important to spot the trend. See why.

Steel groups call for renewed emphasis on steel overcapacity

Groups around the world have asked governments to “intensify” their work with the Global Forum on Steel Excess Capacity.

“Steel industries throughout the world expressed tremendous concern about the recent increase in steel overcapacity at a time when steel demand is severely depressed by the COVID-19 pandemic, reversing a trend of gradual decreases in overcapacity in the three years after the GFSEC was established (2016 – 2019),” the American Iron and Steel Institute (AISI) said in a release.

Among the action items suggested by the groups included development of “stronger disciplines” related to industrial subsidies. In addition, the groups called for upholding “effective trade remedies” in order to ensure a level playing field.

Freeport-McMoRan releases Q3 financials

Miner Freeport-McMoRan released its Q3 financials today, reporting net income of $329 million, up from a loss of $207 million in Q3 2019.

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India

Zerophoto/Adobe Stock

After a period of negative news following the COVID-19 pandemic, there’s finally some cheer for India’s steel industry, particularly related to Indian domestic steel demand.

Domestic steel demand has bounced back to pre-COVID levels. Automotive and white goods sector demand have driven the steel demand recovery.

Are you on the hook for communicating the company’s steel performance to the executive team? See what should be in that report!

Indian domestic steel demand recovers

As per a report by financial firm Motilal Oswal, higher steel prices and lower coking coal prices ensured Indian primary steel producers’ margins remained strong. In addition, the report noted there were signs of domestic steel demand recovering gradually in the country.

The Motilal Oswal report also pointed out that India’s finished steel consumption, too, is recovering gradually. India’s finished steel consumption registered a drop of as much as 85% year over year in April 2020.

Chinese demand boosts Indian steel

What’s more, a renewed demand in the largest steel consuming market in China also boosted the bullish steel market in India.

Steel trade data by China shows demand remains strong there. China’s net steel exports declined to 10-year lows in September 2020. In addition, China saw a spurt in passenger car sales in September.

Because of these developments in China, its fallout was also seen in the Indian markets. Steel prices have also firmed up and have shown consistent increases over the last four months since July.

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The U.S. steel sector continued to show incremental gains in capacity utilization last week.

Capacity utilization by U.S. mills rose to 69.4% for the week ending Oct. 17, 2020, according to the American Iron and Steel Institute (AISI).

See why technical analysis is a superior forecasting methodology over fundamental analysis and why it matters for your steel buy.

U.S. steel sector continues capacity gains

For the week ending Oct. 17, the U.S. steel sector’s capacity utilization rate rose to 69.4%, producing 1.54 million tons in the process.

The weekly output marked a 15.0% year-over-year decline. Output during the week ending Oct. 17, 2019, totaled 1.81 million tons at a capacity utilization rate of 78.0%.

Meanwhile, production for the week ending Oct. 17, 2020, rose 2.2% from the previous week. For the week ending Oct. 10, 2020, production reached 1.50 million net tons at a capacity utilization rate of 67.9%.

YTD output down 19.4%

Adjusted year-to-date production through Oct. 17 reached 62.48 million net tons. Capacity utilization rate during the period reached 66.3%.

The year-to-date output is down 19.4% from the 77.55 million net tons during the same period last year. The capacity utilization rate during that period reached 80.1%.

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According to the Financial Times, China’s President Xi Jinping surprised the global community by announcing last month a hugely ambitious plan to improve China’s environment and make the country carbon-neutral by 2060.

In addition, he said the country’s emissions would peak before 2030.

But does this really mean anything? If it does, what impact will it have on the country’s massive steel industry? The steel industry, of course, is the source of a significant proportion of the country’s carbon emissions?

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China’s environment and emissions figures

Firstly, let’s look at the scale of the proposition.

China is the world’s largest emitter of greenhouse gases (such as carbon dioxide and methane).

Last year, China’s emissions accounted for roughly 27% of the global total. The country’s total accounted for more than the U.S., Europe and Japan combined, the Financial Times reported.

Furthermore, the country consumes more coal than the rest of the world put together. In addition, China continues to commission new coal power plants.

On the one hand, China also leads the world in the deployment of solar power, wind power and electric vehicles. Its energy-efficiency policies are ambitious and successful. Significantly, there are no known climate change deniers in the Chinese leadership.

But is the pledge meaningful?

It contrasts poorly with that made by almost 70 countries and the E.U. Those countries have already pledged to make their economies “net-zero” greenhouse gas emitters by mid-century, or 10 years earlier than China’s pledge.

And the 2030 peak emissions date is a rehash of a commitment made back in 2014, suggesting peak emissions could be reached well before 2030 and the authorities are simply back-sliding.

Difficult changes

The scale of the challenge vis-a-vis China’s environment and emissions is considerable.

More than 85% of China’s primary energy last year came from coal, oil, and natural gas, all of which produce carbon dioxide. This came despite massive investment in solar and wind.

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