Steel

Average global steel prices soared 14% in November, after rising 2.7% in October. This spike in prices was somewhat expected following surging coking coal prices in October. Prices were forced higher still with a resurgent iron ore price, which briefly topped US$80/t in late November. However, the associated increase in steelmaking raw material costs is putting pressure on steelmakers’ profitability in China, as raw material prices have risen faster than steel prices over the past few months.

AME expects steel prices will remain relatively stable for the remainder of 2016, with anticipated falling raw material costs improving producers’ margins somewhat.

Chinese steel exports decreased 12.6% month on month and 15% year on year to 7.7Mt in October. This is the third straight month that steel exports have declined as anti-dumping duties, countervailing duties and new trade investigations filed against China so far in 2016 appear to be gaining traction. This includes the provisional anti-dumping duties of 13.2–22.6% on hot rolled flat steel and 65.1–73.7% on hot rolled heavy plates by the European Union. Turkish authorities have commenced an evaluation of current anti-dumping (AD) and countervailing duties filed on imported hot rolled coil (HRC) products from China and other countries. The outcome of these tariffs may result in more expensive prices for imported steel producers, lining prices up with domestic producer prices. Overall, global exports volumes, and primarily Chinese exports, are expected to decline further with myriad investigations underway globally.

Global crude steel output rose 3.3% year on year to 137Mt in October; the growth is mainly attributable to the Asian region—China achieved a solid 4% year-on-year production growth to 68.5Mt—mostly due to better prices and margins. Meanwhile, total output for the rest of the world remained relatively stable. Notable movers were India, up 12.3% year on year, to 8.3Mt, and Taiwan, with output up 9% year on year to 1.9Mt. This growth was partially offset by a 3.7% year-on-year decline in production from Germany, to 3.5Mt, a 2.5% decrease in the US to 6.4Mt, and an 8% decrease in the Ukraine to 1.9Mt during the period.

The National Development and Reform Committee (NDRC) of the Chinese government announced that the steel capacity cut target of 45Mtpa for 2016 has been achieved ahead of schedule. The target was achieved through acceleration in capacity elimination in the second half of this year. The acceleration was necessary after only 30 percent of the target had been achieved in the first half of the year. Whilst expected, it is worth noting that a large portion of the capacity, which has been removed, had already been idled or shut down previously. Attention will shortly shift to the 2017 target; however, like 2016, we currently expect most of the cuts to be in the second half of the year as mills will be less willing to shut profitable production before they have to.

China’s Ministry of Industry and Information Technology has released its plan for the steel industry for 2016–2020. To facilitate the capacity removal target of 100–150Mtpa, to 1,000Mtpa by the end of 2020, the government has modified the capacity swap principle for new facilities. The ‘reduced capacity swap’ requirement (removing more old capacity to build new capacity, at a ratio of 1.25:1) is now applicable to all regions in China. Previously, it only applied to Tianjin-Beijing-Hebei, Yangtze Delta and Zhujiang Delta regions. Facilities that had already been listed as capacity removal targets, prior to the start of 2016, or those receiving government subsidies are not permitted to be used in the capacity swap quota.

Recurring seasonal production restrictions have been placed on steelmakers by the Chinese government as the Chinese winter, and high levels of air pollution approaches. This year, the measures taken by the government are the strongest yet.

  • The government of Tangshan City in Hebei province has ordered many of its industrial factories to reduce output or shut down for up to four months. Steel producers are required to cut emissions by up to 50% from the 15th of November 15 to the 21st of December, and sinter plants that are not equipped with desulphurization equipment will be required to partially shut down. Coke making plants will all be required to extend their coking time to 36 hours until the new year, and if emissions targets are still not met, coking time will be extended to 48 hours.
  • Chinese private steelmaker Sino Giant Group has signed an agreement with the government of Tangshan Fengnan District in Hebei, China, to jointly establish an 8Mtpa greenfield integrated steel project. The Fengnan government will be the majority owner of the new plant and Sino Giant will own the remaining interest. The proposed plant will be the result of consolidation between steelmakers in the urban area in the region, including Tangshan Guofeng. It involves demolishing 12Mtpa of steel capacity and will use it as a capacity quota for the new 8Mtpa steel project. The new project will be in the coastal area of Fengnan, with a capital cost of CNY38bn (US$5.6bn). Construction of the plant will start in late November 2016 and is to be completed in four years.
  • Indian steelmaker SAIL has halted production of the hot strip mill (HSM) at its 4.6Mtpa Bokaro Steel Plant (BSL) due to a water shortage affecting the entire city. The mill stopped operations from the 9th of November after the Tenughat Dam was damaged on the 2nd of November. It is unclear when operations will re-commence as the company wishes to fill on-site damns before restarting production.
  • Korea’s largest trading company, POSCO Dawoo, has announced a merger with POSCO P&S. The merger, which will take effect as of the 1st of March 2017, will see POSCO Daewoo transformed into one of the world’s largest steel trading companies. POSCO P&S engages in steel marketing, machining, and scrap recycling and was formed earlier this year through mergers of POSCO AST, POSCO TMC, and SPFC.