Tag Archives: Steel

The Global Steel Trade that Trump Just Hit with Tariffs? by Wolf Richter

Posted on June 2, 2018 | Leave a comment

China dominates the global steel trade. From Wolf Richter at wolfstreet.com:

Who totally dominates it?

Steel tariffs are now in place, and the world is grumbling and threatening retaliation against the US. Its closest partners, such as Canada, are trying to figure out how to navigate the waters. Part of Corporate America is lobbying against it and wagging its checkbook. The other part of Corporate America — the part that has been lobbying for it — is now grinning from ear-to-ear. And the media is steeped in this melee. But just who is producing all this steel, and who is dominating this trade?

In April, China’s crude steel production rose 4.8% from a year ago to 76.7 million tonnes (Mt), the highest on record, according to the World Steel Association. This was nearly 11 times as large as the 6.9 Mt of crude steel that the US produced.

China’s production was nine times as large as that of the second and third largest producers, Japan and India, each with 8.7 Mt. World production of crude steel in April was 148.3 Mt, of which China’s share was 51.7%.

And with somewhat awkward timing, the World Steel Association, whose members represent approximately 85% of the world’s steel production, just released its World Steel in Figures 2018, with data through 2017. So here we go, step by step.

Steel production has grown sharply over the years. Since 1996, there were only three years when production declined: In 1998, as a result of the Asian Financial Crisis, in 2009 as a result of the Global Financial Crisis, and in 2015, when China made a short-lived effort to get a grip on its rampant overproduction.

So how big of a role does China play in this?

The chart below shows steel production by some of the major regions: China (red line); Asia/Oceania without China (green line), which includes Japan, South Korea, and India; the EU (mauve line); North America, the NAFTA countries (black line), and the CIS (brown line) which includes Russia, Ukraine, and others. Note that production growth in China blew right through the Asian Financial Crisis and the Global Financial Crisis, but dipped in 2015:

To continue reading: The Global Steel Trade that Trump Just Hit with Tariffs?

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WSJ Editors: “This Is The Biggest Policy Blunder Of Trump’s Presidency”

Posted on March 2, 2018 | 1 comment

Trump is shooting himself in the foot on trade. From the editors of the Wall Street Journal, via zerohedge.com:

With Peter Navarro egging him on, and a handful of US steel and aluminum producer CEOs patting him on the back, President Trump’s decision to impose tariffs has prompted worldwide outrage from the establishment as a sign of impending trade wars and the end of the world as we know it.

While many are purely political kneejerk reactions – just as anything Trump does is a negative (think “crumbs”) to those on the ‘other’ side – The Editorial Board at  The Wall Street Journal,  believe that Donald Trump made the biggest policy blunder of his Presidency Thursday by announcing that next week he’ll impose tariffs of 25% on imported steel and 10% on aluminum.

This tax increase will punish American workers, invite retaliation that will harm U.S. exports, divide his political coalition at home, anger allies abroad, and undermine his tax and regulatory reforms.

The Dow Jones Industrial Average fell 1.7% on the news, as investors absorbed the self-inflicted folly.

Mr. Trump has spent a year trying to lift the economy from its Obama doldrums, with considerable success. Annual GDP growth has averaged 3% in the past nine months if you adjust for temporary factors, and on Tuesday the ISM manufacturing index for February came in at a gaudy 60.8. American factories are humming, and consumer and business confidence are soaring.

Apparently Mr. Trump can’t stand all this winning. His tariffs will benefit a handful of companies, at least for a while, but they will harm many more. “We have with us the biggest steel companies in the United States. They used to be a lot bigger, but they’re going to be a lot bigger again,” Mr. Trump declared in a meeting Thursday at the White House with steel and aluminum executives.

No, they won’t. The immediate impact will be to make the U.S. an island of high-priced steel and aluminum. The U.S. companies will raise their prices to nearly match the tariffs while snatching some market share. The additional profits will flow to executives in higher bonuses and shareholders, at least until the higher prices hurt their steel- and aluminum-using customers. Then U.S. steel and aluminum makers will be hurt as well.

Mr. Trump seems not to understand that steel-using industries in the U.S. employ some 6.5 million Americans, while steel makers employ about 140,000. Transportation industries, including aircraft and autos, account for about 40% of domestic steel consumption, followed by packaging with 20% and building construction with 15%. All will have to pay higher prices, making them less competitive globally and in the U.S.

To continue reading: WSJ Editors: “This Is The Biggest Policy Blunder Of Trump’s Presidency”

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In 2002, President Bush Imposed 30% Steel Tariffs; This Is What Happened Next, by Tyler Durden

Posted on March 2, 2018 | 1 comment

Tariffs didn’t work out too well for President Bush; they probably won’t work out too well for President Trump. From Tyler Durden at zerohedge.com:

an eerie analogue of what is about to take place, on March 5, 2002 President George W. Bush imposed tariffs as high as 30% on global steel imports.

The temporary tariffs of 8–30% were originally scheduled to remain in effect until 2005. They were imposed to give U.S. steel makers protection from what a U.S. probe determined was a detrimental surge in steel imports, as more than 30 steel makers had recently declared bankruptcy. Canada and Mexico were exempt from the tariffs because of penalties the United States would face under NAFTA. Additionally, some developing countries such as Argentina, Thailand, and Turkey were also exempt.

The response was immediate.

Domestically, some of the president’s political opponents, such as Democratic House Representative Dick Gephardt, criticized the plan for not going far enough. For some of the president’s conservative allies, imposing the tariff was a step away from Bush’s commitment to free trade. Critics also contended that the tariffs would harm consumers and U.S. businesses that relied on steel imports, and would cut more jobs than it would save in the steel industry.

The international response – like now – was more vocal.

Immediately after the announcement, the European Union announced that it would impose retaliatory tariffs on the United States, risking the start of a major trade war. To decide whether or not the steel tariffs were fair, a case was filed at the Dispute Settlement Body of the World Trade Organization (WTO). Japan, Korea, China, Taiwan, Switzerland, Brazil and others joined with similar cases.

In a decisive decision, on November 11, 2003, the WTO came out against the steel tariffs, saying that they had not been imposed during a period of import surge—steel imports had actually dropped a bit during 2001 and 2002—and that the tariffs therefore were a violation of America’s WTO tariff-rate commitments. The ruling authorized more than $2 billion in sanctions, the largest penalty ever imposed by the WTO against a member state, if the United States did not quickly remove the tariffs.

To continue reading: In 2002, President Bush Imposed 30% Steel Tariffs; This Is What Happened Next

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‘National Security’: The Last Refuge of Vote-Buying Politicians, by Thomas Knapp

Posted on May 1, 2017 | Leave a comment

Can you think of one good that somebody, somewhere, couldn’t claim is important for our national security? From Thomas Knapp at antiwar.com:

More than half a century ago, Congress passed the Trade Expansion Act of 1962. Since mid-April, US president Donald Trump has twice invoked one of the law’s nearly forgotten provisions, ordering Commerce secretary Wilbur Ross to investigate the possibility that steel and aluminum imports “threaten to impair the national security.”

If Ross says they do and Trump agrees, the law empowers him to “take such action, and for such time, as he deems necessary to adjust the imports of such article and its derivatives so that such imports will not so threaten to impair the national security.”

Keep in mind that when a president orders “investigations” of this sort it’s not for the purpose of arriving at the truth of the matter, but rather for the purpose of getting the answers he wants to hear so that he can claim justification for doing the things he wants to do.

For that reason, I can confidently predict that in the near future we’ll see restrictions on the importation of aluminum and steel, in the name of, but not actually for the purpose of, enhancing “national security.” In fact, those restrictions will have exactly the opposite effect.

Trade is one of the best guarantors of peace. Economist Otto T. Mallery perhaps overstated it a bit in saying that when goods don’t cross borders, armies will. But it should at least be obvious that when goods DO cross borders, armies are less likely to cross those same borders. Merchants and customers who are happy with each other don’t look for fights with each other.

If “national security” is just an excuse, what is the real reason? Why does Trump want to ban – or at least drastically reduce – steel and aluminum imports?

If you have to ask why, the answer is usually “money.” In this case, it’s “money and votes.”

Trump’s narrow victory in last year’s presidential election came down to a few tens of thousands of votes from Rust Belt workers who believed he would “bring the jobs back.” He wants to keep his promise – or, at least, he wants to keep their votes for his party in 2018 and himself in 2020. He also wants the financial and political support of American companies benefiting from captive steel and aluminum markets.

To continue reading: ‘National Security’: The Last Refuge of Vote-Buying Politicians

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China Warns “Social Stability Threatened” As 400,000 Steel Workers Are About To Lose Their Jobs, by Tyler Durden

Posted on January 25, 2016 | Leave a comment

From Tyler Durden at zerohedge.com:

In late September, we were stunned to read (and report) that in the first mega-layoff in recent Chinese history, the Harbin-based Heilongjiang Longmay Mining Holding Group, or Longmay Group for short, the biggest met coal miner in northeast China had taken a page straight out of Jean-Baptiste Emanuel Zorg’s playbook and fired 100,000 workers overnight, 40% of its entire 240,000 workforce.

For us this was the sign that China’s long awaited “hard landing” had finally arrived, because as China’s paper of record, China Daily, added then: “now, many migrant workers struggle to find their footing in a downshifting economy. As factories run out of money and construction projects turn idle across China, there has been a rise in the last thing Beijing wants to see: unrest.”

We added that “if there is one thing China’s politburo simply can not afford right now, is to layer public unrest and civil violence on top of an economy which is already in “hard-landing” move. Forget black – this would be the bloody swan that nobody could “possibly have seen coming” and concluded that as for the future of China’s unskilled labor industries, the Fifth Element’s Jean-Baptiste Emanuel Zorg has a good idea of what’s coming.

Fast forward to today when, if not a full million, Xinhua reports that as part of China’s proposed excess capacity production curtailments the country’s steel production slash will translate into the loss of jobs for up to 400,000 workers, estimated Li Xinchuang, head of China Metallurgical Industry Planning and Research Institute. Li said more people will be affected in the upstream and downstream industries. According to some estimates just like every banker job in New York “feeds” up to three downstream jobs, so in China every worker in the steel industry helps support between 2 to 3 additional job.s Which means, 400,000 primary layoffs would mean a total job loss number anywhere between 1.2 and 1.6 million jobs!

As a reminder, previously China had announced that it would cut steel production capacity by 100 to 150 million tonnes, while coal production will be reduced by “a relatively large amount,” according to a statement released Sunday by the State Council. We have yet to get an estimate of how many coal jobs will be lost.

The reason we were, and remain, skeptical about China ever following through on this production curtailment is precisely the massive layoffs that will result: layoffs which would enflame an already tenuous employment situation because as we showed recently, the number of worker strikes in China has gone parabolic in the past year, soaring to a record high over 2,700 in 2015, more than double the previous year’s total.

Li confirmed this very disturbing trend when he told Xinhua that “large-scale redundancies in the steel sector could threaten social stability.”

To continue reading: China Warns “Social Stability Threatened” As 400,000 Steel Wrokers Are About To Lose Their Jobs

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The Trade Wars Begin: U.S. Imposes 256% Tarriff On Chinese Steel Imports, by Tyler Durden

Posted on December 23, 2015 | Leave a comment

From Tyler Durden at zerohedge.com:

Two weeks ago, when looking at the latest import price index data, we showed something disturbing: China has become an all out exporter of deflation. As the chart below shows, In November, import prices from China decreased 1.5% over the past 12 months, the largest year-over-year drop since the index declined 1.7% for the year ended in January 2010.

How did this happen? As we explained, with all of its domestic markets fully saturated, China has had no choice but to export its soaring commodity production as we explained in “Behold The Deflationary Wave: How China Is Flooding The World With Its Unwanted Commodities.”

As we noted then, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs. That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.

To continue reading: The Trade Wars Begin

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When It Rains It Pours as China Unleashes Commodity Torrent, by Heesu Lee

Posted on December 9, 2015 | Leave a comment

From Heesu Lee at bloomberg.com:

Net oil-product exports surge to record; aluminum, steel rise
Flood threatens global producers, prompts trade disputes

There’s no let-up in the onslaught of commodities from China.

While the country’s total exports are slowing in dollar terms, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs. That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.

The flood is compounding a worldwide surplus of commodities that’s driven returns from raw materials to the lowest since 1999, threatening producers from India to Pennsylvania and aggravating trade disputes. While companies such as India’s JSW Steel Ltd. decry cheap exports as unfair, China says the overcapacity is a global problem.

“It puts global commodities producers in a bad situation as China struggles with excess supplies of base metals, steel and oil products,” Kang Yoo Jin, a commodities analyst at NH Investment & Securities Co., said by phone from Seoul. “The surplus of commodities is becoming a real pain for China and to ease the glut, it’s increasing its shipments overseas.”

To continue reading: China Unleashes Commodity Torrent

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U.S. Steel Yield Surges as Metal Rout Imperils Turnaround, by Sonja Elmquist

Posted on November 15, 2015 | Leave a comment

And the beat goes on. From Sonja Elmquist at bloomberg.com:

Notes due 2020 capped a fifth straight weekly decline

Hot-rolled steel coil is at the lowest since June 2009

U.S. Steel Corp. bonds plunged, sending yields to record highs, as slumping metal prices hinder its efforts to return to profitability after three consecutive quarters of losses.

The Pittsburgh-based company’s $600 million in notes due 2020 capped a fifth straight weekly decline, pushing up yields to 20 percent. That’s a record 12 percentage points above an index of high-yield debt sold by materials companies. U.S. Steel is the index’s worst performer in the past month after Essar Steel Algoma, which filed for bankruptcy protection this week.

“Folks are beginning to question the viability of the business, just given how weak steel fundamentals are,” Matt Vittorioso, an analyst at Barclays Capital in New York, said by phone Friday.

The company has repurchased $197.7 million of convertible bonds due in 2019, it said in a filing Friday.

U.S. Steel, the country’s second-biggest producer, declined to comment on its bond performance.

The metal extended a plunge this month, trading only $5 above the lowest price seen in the commodity crash following the global financial crisis. Hot-rolled steel coil — the benchmark form of the metal used in car parts, buildings and appliances — fell to $387 a ton, the lowest since June 2009. Last week, ArcelorMittal, the world’s biggest producer, said global steel consumption will fall by as much as 2 percent in 2015 with only a “slight” improvement in demand expected next year.

To continue reading: U.S. Steel Yield Surges as Metal Rout Imperils Turnaround

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ArcelorMittal Is Latest Victim of China’s Steel-Export Glut, Thomas Biesheuvel

Posted on November 7, 2015 | Leave a comment

Gluts in natural resources, the product of history’s biggest credit bubble, are now moving up the supply chain to finished goods, in this case steel. From Thomas Biesheuvel at bloomberg.com

Full-year Ebitda forecast reduced to $5.2 billion-$5.4 billion

Third-quarter profit declines 29% from a year earlier

ArcelorMittal is taking the latest knock from record Chinese steel exports hurting producers across the globe.

The world’s biggest steelmaker on Friday cut its full-year profit target and suspended its dividend, putting the blame on the flood of cheap steel from China’s loss-making mills. The market is being overwhelmed with material coming from the nation’s state-owned and state-supported producers, a collection of industry associations said Thursday.

“It is obvious that we are operating in a very challenging market,” Chief Financial Officer Aditya Mittal said on a call with reporters. “This is essentially the result of very low export prices out of China that are impacting prices worldwide.”

The steel industry has been roiled by the slowest economic growth in two decades in China, the biggest consumer. The flood of cheap exports from the nation has drawn complaints from Europe and the U.S. that the shipments are unfair. Bloomberg Intelligence estimates Chinese steel shipments overseas will exceed 100 million metric tons this year, more than the combined output of Europe’s top four producing countries.

While demand for steel in the company’s largest markets of the U.S. and Europe is recovering, producers’ profits are being hit by slumping prices because China has been pushing excess supply onto the world market as its economy slows.

To continue reading: ArcelorMittal Is Latest Victim of China’s Steel-Export Glut

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Iron Ore May Struggle to Reclaim $50 on China, Rising Output, by Jasmine Ng

Posted on October 31, 2015 | Leave a comment

SLL posts a lot of stories about the Chinese economy because its the second or first largest in the world, depending on who’s counting, and what goes on in China doesn’t stay in China. It’s the epicenter of the unfolding debt contraction, like the US housing market was last time. From Jasmine Ng at bloomberg.com:

Downturn in China’s steel consumption will weigh on prices

Low-cost mine supplies from Australia, Brazil set to expand

Iron ore ’s tumble back below $50 a metric ton may last for some time as the twin factors that put it there, rising low-cost production from the majors and signs of faltering demand in China, will probably persist.

“We do think the price will stay below $50,” Caroline Bain, senior commodities economist at Capital Economics Ltd. in London, said by e-mail. “The combination of the ongoing ramp-up in supply from Australia and Brazil and the downturn in China’s steel demand will weigh on prices.”

Iron ore’s latest descent below the $50 level, after spells there in April and July, follows production reports from Rio Tinto Group, BHP Billiton Ltd. and Vale SA that show further additions of low-cost tonnage, reviving concerns of a glut. In China, the biggest buyer, steel demand and production are shrinking and product prices are in retreat while exports surge, stoking trade tensions.

“Chinese demand continues to struggle,” said Jeremy Sussman, an analyst at Clarkson Capital Markets LLC in New York, which sees prices at about $47 a ton this quarter. “September was the strongest month of the year of shipments from Australia and Brazil, so these exports have likely been making their way to China this month, adding to excess supply there.”

Heading Lower

Ore with 62 percent content delivered to Qingdao fell 0.6 percent to $49.65 a dry ton on Thursday, the lowest price since July 9, according to Metal Bulletin Ltd. Prices on Wednesday tumbled 3 percent, snapping the trading range of $50 to $60 that’s held since July 10. Iron ore bottomed this year at $44.59 on July 8.

Stockpiles of iron ore at ports in China, tracked as one gauge of demand, have increased to the highest since May. The holdings rose 0.9 percent to 83.95 million tons on Oct. 23, according to weekly data from Shanghai Steelhome Information Technology Co.

Zhu Jimin, deputy head of the China Iron & Steel Association, said Wednesday that local demand for steel is contracting even faster than mills are cutting output, swelling a steel glut. Mills face rising losses and tighter credit, according to the group.

The strains on China’s steelmakers are starting to show up. Baoshan Iron & Steel Co., China’s second-largest mill by output, swung to a net loss in the third quarter and warned that full-year profit could be wiped out, according to a statement on Wednesday.

“At some point, Chinese steel mills will have to respond to lower demand, lower prices and increasing signs of protectionism in export markets and cut production, which will, of course, dent iron ore demand,” said Bain.

Prices will probably fall further from the recent range of $50 to $55 a ton, Tom Albanese, chief executive officer of Vedanta Resources Plc, told the Australian Financial Review in an interview.

http://www.bloomberg.com/news/articles/2015-10-29/iron-ore-may-struggle-to-push-back-above-50-as-china-stumbles

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