Protection Measures Support Steel Prices but Disrupt Trade Flows

Supply options for large exporters of steel, such as those in China and Russia, are becoming limited, owing to existing trade barriers, implemented by many authorities around the world. As a consequence, steelmakers are scouring the globe, for new destinations, in which to sell their excess capacity.

From MEPS’ research, in October, many Chinese steel market participants report that they are finding it increasingly problematic to sell into the neighbouring Southeast Asian market. This is due to the emergence of local mills and strong competition, from Russian, Indian and Iranian steel manufacturers.

As a consequence, Chinese producers are actively seeking new business relationships, in the Middle East and Africa, where the demand of steel is in excess of local production capacity. Chinese mills should be confident of increasing their market share, at the expense of regional suppliers.

Protectionist measures and trade cases, in many parts of the world, are disrupting traditional flows of material – affecting the ethos of free trade.

In the US, Section 232 legislation has given local steelmakers the opportunity to escalate selling values with little resistance, in the past twelve months. Although figures are softening, from their recent highs. Cross-border trade across North America has been disrupted by the measures. The United States-Mexico-Canada Agreement (USMCA) is expected to result in the removal of steel tariffs, and replacement by quotas, in the latter part of this year.

Following the introduction of temporary safeguarding measures, European steelmakers were able to solidify domestic steel selling values, during the traditionally slow summer period. Weakening sentiment has resulted in a reversal of the upward price trend, in recent weeks. Nonetheless, it is reported that a vast proportion of the steel quotas are being under-utilised. Local buyers appear to be procuring material from domestic sources rather than from third-party countries.

MEPS predicts that the current level of trade protection afforded to mills, in several regions of the world, will help them maintain prices, at their relatively elevated level, for the foreseeable future.

Source: MEPS International Steel Review

EU Steel Prices Steady in May Despite Anxiety in Global Market

The European steel market continues to be affected by rising uncertainty. Trade with non-EU countries is considered a risk because of the possibility of sanctions being applied for material already contracted. Moreover, steel buyers, where possible, are postponing their purchasing decisions while they consider the potential outcome of the USA’s Section 232 legislation and the EC safeguard investigation. Consequently, as buying activity slowed, prices either stabilised or, particularly in the south of Europe, registered modest downward movements, in May. Underlying demand remains healthy, supported by favourable economic conditions.

The German manufacturing sector made a robust start to the second quarter, with output rising substantially. Mill order intake is healthy as end-users are, finally, forced into placing orders. However, in the distribution sector, sales activity slowed, in May. Recent strip mill business was negotiated at figures similar to last month’s values. Service centres are cutting their resale prices, often quite significantly, in order to try to stimulate sales. Import offers are not competitive.

French basis values were generally unchanged, in May. Buyers expect this stability to continue, despite the steelmakers’ attempts to obtain further rises. A number of distributors are satisfied with sales volumes, but others report a noticeable slowdown. Nonetheless, demand from the construction and auto industries remains healthy. The high number of public holidays and extended weekends, in the month of May, reduced the amount of business but activity is expected to recover, in June. Meanwhile, planned industrial unrest, resulting in strike action through to June, plus a shortage of available transport, is complicating delivery logistics.

The recent slowdown in growth in the Italian manufacturing sector continued during April. Steel buyers successfully negotiated discounts from the producers, during May settlements. This was, partly, a reaction to reduced import pricing. However, overseas offers are now becoming more expensive due to changes in the euro/US dollar exchange rate. Downstream customers are less busy and service centres have enough stock to allow them to postpone purchasing decisions.

At the start of the second quarter, UK manufacturing output continued to grow, albeit at a reduced rate. Distributors report that sales activity is slowly picking up. However, they still struggle to pass on mill increases, to their customers. A number of stockists note slightly improved resale prices, as cheaper inventories are now diminished. Both the auto and construction industries are underperforming. Basis values quoted by steelmakers, for third quarter delivery, are slightly lower than those reported in April.

No major price changes were noted in the Belgian market, in May. Service centres state that producers are unwilling to offer reductions prior to the summer holidays. Distributors only place orders for what they need each month. In the majority of cases, they can now incorporate the mill increases in their resale values to end-users. Deliveries from the domestic steelmakers are running late. Import pressure is lacking. Deals appear to be on hold as buyers await the outcome of the Section 232 measures.

The rate of expansion in manufacturing output increased in Spain, in April. Currently, the steel market is rather quiet, despite good underlying consumption. Expectations for lower prices, in the near future, have led to a ‘wait and see’ attitude amongst customers. Service centre inventories, although modest, are at a sufficient level to enable buyers to postpone placing new orders for large quantities. Quotations from overseas suppliers, with the exception of those for cold rolled coil, are unattractive. Domestic price corrections were noted for all strip mill categories, this month. Distributors failed to fully recoup recent mill hikes from their customers.

Source: MEPS – European Steel Review (May Edition)

People also read: Section 232 Continues to cast a shadow over emerging steel markets

Section 232 Probe Creates Chaos In Global Steel Industry

The consensus view from MEPS research, is that a large degree of uncertainty persists in the global steel market. It is becoming increasingly evident that North American and European steel buyers are hesitant about making purchasing decisions.

Section 232

US authorities introduced a 25 percent tariff on steel imports last month. Concerns regarding the final outcome of the Section 232 probe have developed around the world. These, particularly, relate to the potential for the diversion of trade into the EU. As a result, the European Commission is investigating the possibility of introducing further trade legislation. The likelihood is that existing and additional trade protection measures would lead to a decrease in imports and, potentially, cause supply shortages, in the US and EU.

It is widely perceived that protectionism restricts the choices for the customer. These measures are designed to safeguard the strategic interests of a steel-producing nation. Customers would, arguably, be denied the opportunity to procure material at competitive prices.

North America

In North America, regional mills have been given relatively free rein to escalate flat products’ selling values, in recent months – with minimal resistance from buyers. Amid a healthy trading environment, many US stockists remark that availability of material has tightened. At the end of this month’s research period, it was increasingly apparent that the positive pricing momentum, within the region, is stalling. MEPS believes that US flat product transaction values are nearing the peak of the current cycle. It is likely that US prices have now increased to levels at which imports are competitive, once again. Furthermore, local steelmakers intend to raise production. This should prevent shortages from developing.

Despite existing and potential new trade measures, MEPS predicts that global steel prices will come under negative pressure, in the second half of 2018.

Source:  Keynote from MEPS International Steel Review 

Flat Product Steel Prices Stable in the Nordic Region

Hot rolled coil consumption is steady, in Denmark. Regional mills sought price increases, this month, but buyers resisted, according to the latest edition of MEPS European Steel Review Supplement. In Sweden, while demand from the building sector declined, a little, the overall economy is strong. This is reflected in healthy steel sales volumes. Purchase tonnages are stable, at a high level, in Finland. In Norway, purchasing activity is brisk but is not predicted to increase significantly.

The plate market, in Denmark, is a little subdued but a pickup is predicted, in the near term. European mills continue to push for price increases. However, end-users believe that transaction values are too high and, consequently, stockists are reluctant to agree to the producers’ proposals. Third country import offers are rising. In Sweden, contract prices are up, for quarter two, but the trend in spot values has levelled out. Industrial consumption is healthy. Plate demand is good, in Finland. Selling values are at a high level but did not increase, this month. Producers’ delivery lead times are extending, in Norway. Demand, from machinery manufacturers and the offshore energy sector, is growing.

Buyers, in Denmark, are finding the availability of cold rolled coils, from EU mills, limited. They are, therefore, purchasing more from third country suppliers. The requirement from the manufacturing sector is strong, in Sweden. Sales volumes and transaction values are high. The Swedish currency continues to weaken. Cold rolled coil consumption is steady, at a satisfactory level, in Finland. Prices, are unchanged, in April. Demand is fair, in Norway. However, customers are buying only for their immediate needs, as they expect prices to decline, soon.

In Denmark, the coated coil market remains strong and supply is still restricted. This will begin to ease when ArcelorMittal restarts its galvanising line, in Belgium. For now, prices for thin gauge material are rising but those for MEPS’ benchmark products are unchanged. In Sweden, carmaking activity is very strong and demand from the industrial sectors, generally, is more than satisfactory. Finnish suppliers continue to report good sales to the auto supply chains in neighbouring Sweden and Germany.

Source: European Steel Review Supplement – April 2018 Edition

People also read: Section 232 Action Creates Ripples Throughout Stainless Steel Markets

Section 232 Action Creates Ripples Throughout Stainless Steel Markets

Divergent trends have emerged, in worldwide stainless steel markets, in the wake of the United States government’s Section 232 deliberations. Acting on the recommendations of the report arising from the investigation into the effect of foreign-produced steel on US national security, President Donald J. Trump announced a tariff of 25 percent, to be applied to all steel imports into the United States, effective from March 23.

American stainless steel producers and distributors alike acted swiftly, applying increases to their selling prices. While this can be seen as taking advantage of the rising cost of material from overseas competitors and a predicted tightness in the supply of stainless steel, it was hoped that this move would discourage panic buying and, to some extent, avert that shortage.

Agreements were soon made with many of the United States’ leading trade partners, granting them exemption from the immediate imposition of the Section 232 tariffs. However, in a number of instances, the action is merely delayed, pending further negotiations. Consequently, US customers and traders remain reluctant to place orders with suppliers from certain countries, for fear that tariffs could be re-imposed by the time material is delivered. In this environment, it should be possible for local sellers to maintain their elevated prices, in the near term.

In other regions, this development has raised the spectre of a glut of stainless steel, as some producers lose their current outlets in the United States. Market prices have weakened, accordingly.

In Europe, despite encouraging domestic sales volumes, in the early part of this year, and a perception of strong underlying demand, stainless steel flat product basis values slipped, in March. They could decline further, in April.

Producers in South Korea were unable to secure, in March, the increases that they thought were justified by earlier rises in raw material costs. LME nickel values are believed to have passed their peak, for the current cycle. Chinese stainless steel coil market prices have been sliding, in recent weeks.

Source: MEPS – Stainless Steel Review – March 2018 Issue

People also read: Further Uncertainty Created by Section 232 Exemptions

Further Uncertainty Created by Section 232 Exemptions

US steel mills lifted selling figures rapidly, in recent months, due to the expectation of rising import prices and supply shortages, following the Section 232 investigation. After the announcement of a blanket 25 percent tariff, it was specified that NAFTA partners, Canada and Mexico, would be excluded from the measures. Subsequently, a number of countries sent delegations to the US to discuss the possibility of exemptions.

On March 22, the day before the tariffs went into effect, Trade Representative Robert Lighthizer stated that the imposition of duties would be “paused” for material sourced from the European Union, Argentina, Australia, Brazil and South Korea, while further discussions take place. It is expected that other nations, such as Japan, may attempt to petition the US authorities for a temporary reprieve. Despite the exclusions, US steelmakers are expected to continue to attempt to lift selling prices, in the coming months, as delivery lead times extend.

The manner by which the policy has been implemented has caused a great deal of uncertainty for supply chain participants, both in the US and globally. Domestic end-users voiced their concerns that elevated steel prices would result in a loss of competitiveness. Steel mills worldwide feared that imports would be redirected into their local market. Furthermore, the blunt nature of the proposed 25 percent tariff did not take into account the complexities of the steel sector. A number of finished steel products are not produced in sufficient quantity, in the US, to meet local market requirements. Furthermore, steel slabs imported by re-rollers, predominantly those located on the West Coast, are a fundamental part of the supply chain.

The appeals process for exclusions was formalised just days before the tariffs came into effect. The market is now likely to endure further uncertainty, in the coming months, as the full extent of the measures are revealed.

Source: MEPS – International Steel Review – March 2018 Edition 

People also read: EU Steel Prices Rise Despite New US Import Tariff Announcement