LGL8054
10 years ago
Chinese Steel looking for a dumping ground
China’s massive steel-making engine, determined to keep humming as growth cools at home, is flooding the world with exports, spurring steel producers around the globe to seek government protection from falling prices.
From the European Union to Korea and India, China’s excess metal supply is upending trade patterns and heating up turf battles among local steelmakers.
In the U.S., the world’s second-biggest steel consumer, a fresh wave of layoffs is fueling appeals for tariffs. U.S. steel producers such as U.S. Steel Corp. and Nucor Corp. are starting to seek political support for trade action.
China’s steel exports rose 63% to 9.2 million tons in January from a year earlier, a rise that puts them on pace this year to beat the 82.1 million tons China exported last year. That number increased 59% from 2013 and was the most steel ever exported by any country this century.
China produces as much steel as the rest of the world combined—more than four times the peak U.S. production in the 1970s. But as China’s growth slows, the excess steel that Chinese industry doesn’t need is washing up overseas.
Steel use in China grew by just 1% in 2014 and growth will slow further to 0.8% in 2015, according to the World Steel Association, as the country’s real-estate sector cools. China’s mills have yet to slow in lockstep. Their output is supported by a fall in the price of iron ore, the main ingredient in making steel.
Mills’ refusal to cut back despite slower demand growth is what irks steelmakers elsewhere in the world.
The state-backed China Iron and Steel Association has in the past described efforts to roll back Chinese exports as “protectionist.” But it has also said that it recognizes the problem and has encouraged Chinese steelmakers to hold down exports.
Chief executives of leading American steel producers said Thursday they would testify later this month at a Congressional Steel Caucus hearing, a move that trade lawyers said is a prelude to launching at least one anti-dumping complaint with the International Trade Commission. “Dumping,” or selling abroad below the cost of production to gain market share, is illegal under World Trade Organization law and is punishable with tariffs.
ENLARGE
Chinese exports to the U.S., which jumped 40% in January from a year earlier, have further depressed prices already hurt by an oil-drilling slowdown and the resulting slump in demand for steel pipes and tube. The benchmark “hot-rolled coil” index has dropped 18% to $492 a ton just since Jan. 1.
European steel leaders met with European trade commissioner Cecilia Malmström last week to make their case for more tariff protection, said Robrecht Himpe, executive vice president at ArcelorMittal Europe and head of the European steel lobbying group Eurofer.
Both the U.S. and the EU already have tariffs in place on a handful of Chinese steel products, but steel companies call them insufficient.
They say what they must do to demonstrate damage from Chinese exports is too difficult. “We have to bleed before we get any relief,” said Debbie Shon, U.S. Steel vice president for international trade.
U.S. Steel last week began laying off 614 workers, in a process that will see some of its tubular plant in Lorain, Ohio, temporarily idled. U.S. Steel has idled six plants since 2014, and this year has laid off or issued layoff warnings to around 3,500 workers.
The EU has six investigations that might lead to tariffs, covering various products such as fasteners and steel wire, an EU spokesman said. Steel imports to the EU from China were 5 million tons in 2014, up 49% from 2013.
In December, Korea’s Hyundai Steel and Dongkuk Steel filed a proposal for an anti-dumping duty of 18% to 33% on Chinese steel.
Australia’s Anti-Dumping Commission is investigating about a dozen cases of alleged dumping of low-priced steel products from Asian countries, including China. Industry minister Ian Macfarlane said the allegation is that steel mills in other countries have been making minor alterations to steel products or routing them through third countries to circumvent Australia’s antidumping laws.
U.S. steelmakers allege a similar practice, saying that China often ships steel to South Korea for processing before it gets moved to the U.S.
In India, where imports of some lower-priced Chinese steel products have surged by close to 200% year-on-year between April 2014 and January 2015, some steelmakers are seeking trade measures including higher duties, said Jayant Acharya, commercial director at JSW Steel.
“There is some trade action definitely required,” said Mr. Acharya. He said that for certain steel products priced at $550 a ton in October, prices of Chinese imports have fallen by as much as $150 a ton. China’s producers doubled their exports to India last year, to 2.8 million tons, according to an ING Bank report.
The global steel industry suffers from overcapacity in part because many countries make it a point of national pride to support a domestic steel industry.
Some producers fear the worst is yet to come. Property and infrastructure construction demand in China is likely to remain under pressure following years of breakneck growth and despite a recent interest rate cut, analysts say. That would mean Chinese domestic demand for steel is unlikely to perk up soon.
Many Chinese steelmakers are government-owned or closely linked to local governments, said Jiming Zou, an analyst at Moody’s Investors Service. Given their important role as employers and providers of tax revenue, the mills are unlikely to close or cut production even if running losses, he said.
China’s steelmakers benefit from relatively low-cost labor and inputs such as coking coal. While there has been some tightening of new lending to Chinese industries that face overcapacity, Mr. Zou said, major state-owned steel makers continue to have their loans rolled over or refinanced.
Analysts pointed to the Chinese currency, as well. “The weakening renminbi was also a factor in encouraging exports,” said Xue Heping, an analyst who advises the China Iron and Steel Association.
Chinese steelmakers could also get a boost from foreign investors. Steel will be among industries opened to foreign ownership, the country’s National Development & Reform Commission, said Friday. The group’s officials have said allowing foreign investment could help calm external criticism of the industry.
China isn’t alone in facing allegations of dumping. Similar complaints have been levelled against others such as Japanese and Indian producers.
South Korean steelmakers have complained that both Chinese and Japanese companies are disrupting their market. But it is Chinese producers, with their large volumes of cheap low-grade steel, that are the main target of criticism.
“Chinese tend to be on the lower end of the price curve for exports, while Japanese mills tend to export higher grades. The real competition for South Korean mills is with China,” said Cindy Park, a Nomura analyst.
The problem of excess capacity doesn’t plague only China but can be seen across northern Asia, said Paul O’Malley, CEO of Australia’s Bluescope Steel.
—Rhiannon Hoyle contributed to this article.
Write to Biman Mukherji at biman.mukherji@wsj.com, John W. Miller at john.miller@wsj.com and Chuin-Wei Yap at chuin-wei.yap@wsj.com
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LGL8054
10 years ago
December 19, 2014 (TSX: ADV) (NYSE MKT: AXX)
Alderon Iron Ore Corp. (TSX: ADV) (NYSE MKT: AXX) ("Alderon" or the “Company”) announces the appointment of Mr. Anthony Glavac as Interim Chief Financial Officer (“CFO”) of the Company effective December 29, 2014. Alderon’s current CFO, Mr. Francois Laurin, is taking an executive position outside of the mining sector in the New Year and is committed to ensuring a seamless transition of his responsibilities to Mr. Glavac.
Mr. Glavac joined Alderon in March 2012 in the role of Senior Manager, Financial Reporting and worked closely with Alderon’s CFO Francois Laurin. During this time he was responsible for overseeing the Company’s internal and external financial reporting processes, as well as preparing the Company’s budgets. Prior to joining Alderon, Mr. Glavac spent thirteen years at KPMG LLP, most recently as a Senior Manager in Audit. During his time at KPMG LLP, he provided accounting, tax and advisory services to many of the public and private businesses, not-for-profit, and public sector organizations in Canada. He worked on various engagements such as financial statement audits and due diligence projects for a diversified clientele, including public and private mining, exploration and development corporations. Mr. Glavac is a CPA, CA and earned his graduate diploma in Public Accountancy and a Bachelor of Commerce degree from McGill University.
“Anthony has been with the Company for the better part of three years and is fully up to speed on all files. He will make an excellent CFO for Alderon during the current part of the market cycle,” says Tayfun Eldem, President & CEO of Alderon. “We would like to thank Francois for his significant contributions to Alderon’s development and wish him all the best.”
About Alderon
Alderon is a leading iron ore development company in Canada with offices in Montreal, Vancouver, St. John’s and Labrador City. The Kami Project, owned 75% by Alderon and 25% by Hebei Iron & Steel Group Co. Ltd. (“HBIS”) through The Kami Mine Limited Partnership, is located within Canada’s premier iron ore district and is surrounded by three producing iron ore mines. Its port handling facilities are located in Sept-Îles, the leading iron ore port in North America. The Alderon team is comprised of skilled professionals with significant iron ore expertise to advance Kami towards production. HBIS is Alderon’s strategic partner in the development of the Kami Project and China’s largest steel producer.
For more information on Alderon, please visit our website at www.alderonironore.com.
ALDERON IRON ORE CORP.
On behalf of the Board
"Mark J Morabito"
Executive Chairman
Montreal Office
Vancouver Office
T: 514-281-9434
T: 604-681-8030
F: 514-281-5048
F: 604-681-8039
E: info@alderonironore.com
www.alderonironore.com
For further information please call:
Evelyn Cox
1-604-681-8030 ext 223 or 1-888-990-7989
Cautionary Note Regarding Forward-Looking Information
LGL8054
10 years ago
Industry Analysis & Trends
The Industry weathered a volatile revenue performance over the past five years. Ultimately, though, tremendous price spikes prior to and following the recession offset any declines that occurred over the period. Over the next five years, surging demand from emerging countries will keep demand for iron ore at its current highs, spurring mining companies; such as Tamino Minerals, Inc., to ramp up production to capitalize on growing revenue and profit opportunities.
Industry Statistics & Forecast
Revenue $298bn
Annual Growth 17.7%
Global iron ore production is rising rapidly, with increases in production outstripping GDP growth over the next 10 years to 2024. Price increases well above inflation levels are also projected to produce particularly strong growth in industry value added (IVA), which measures the industry's contribution to the economy. Over the 10 years to 2024, IVA is expected to increase at an annualized rate of 10.8%. In comparison, world GDP is expected to increase at an average annual rate of 3.6%; therefore, the industry is growing as a share of the global economy. The growth represents the emergence of China as a major new market; which is an included market on the forward strategy of Tamino Minerals, Inc.
Due to the recent increase of Iron Ore prices, it is understood that production from West Africa, specifically from Sierra Leone, has decreased substantially due to the Ebola outbreak in this region of the world.
“The impact of Ebola in terms of iron-ore revenue is huge,” said Lansana Fofanah, a senior economist in Sierra Leone’s Ministry of Finance and Economic Development. “Iron ore is responsible for the country’s double-digit growth since 2011 until the Ebola outbreak.”
With a 14% rise in China's iron-ore imports last month from a year earlier, exports of steel products have risen to a new record, iron-ore prices are expected to increase throughout 2015. (Marubeni, Japanese Iron Ore Investment Company)
Tamino Minerals, Inc. is a Montreal-based mining exploration company committed to delivering value to its shareholders by acquiring, developing and mining precious metals deposits in Mexico.
LGL8054
10 years ago
Steel Mills in the UK are being shut down
*This is where the fight against climate change poses a threat to the UK industry.
This threat comes less from the ambition of whatever targets may get agreed in Copenhagen, than from the means used to achieve those targets. If climate change related costs are higher in the UK and Europe than other regions, then it is the industries in the more cost-competitive countries that will prosper.
Cost-effective decarbonisation is supposed to be central to the Kyoto protocol. Yet already we have seen the UK and EU together produce a complex patchwork of overlapping and costly measures. The government estimated last year that existing climate change policies (covering the Climate Change Levy, Renewables Obligation and the EU Emissions Trading Scheme) have increased industrial electricity bills by 21%, rising to 55% by 2020.
Since then the government has announced a new tax on the combustion of fossil fuels to fund the Renewable Heat Initiative and an additional levy on electricity to finance carbon capture and storage demonstration plants. Each new measure, albeit with the best of intentions, is a further wound in the side of UK industry.
In Europe, the primary instrument applicable to sectors like steel is the EU Emissions Trading Scheme. Despite the good intentions of the Directive agreed last year, we still do not yet know whether the detailed operation of the new scheme to take effect in 2013 will enable cost-effective carbon abatement, or increase our costs further.
The omens at present are not good.
*The largest UK producer, Corus, is a leading member of a European consortium investing in a multi-million euro project to develop a next generation, low carbon steelmaking technology.
*Steel is the most recycled material in the world. More waste steel is recovered in the UK and recycled than all other materials combined. Each tonne of scrap recycled by the steel industry saves 1.9 tonnes of iron ore and 0.6 tonnes of coal.
*One of the most traded materials in the world, competition in steel markets is intense. Today China accounts for around one half of global steel output. Other emerging economies, such as Brazil, Russia, Ukraine and India, all have large steel industries
LGL8054
10 years ago
That reverses a six-month slide in U.S. steel prices caused by too much steel on the market, both in the U.S. and globally.
The industry has been buried with 200 million tons of excess capacity due in large part to the weak European economy and slowing growth in China.
The speed of the recent U.S. price increase has spooked some steel buyers. "When prices go up fast like this, they often go down fast, too," said James Barnett, president of Grand Steel Products Inc., a Wixom, Mich., company that buys steel from mills and, after some processing and cutting, sells around 45,000 tons a year to customers ranging from the automotive industry to shelf makers.
Steel buyers are worried they might get stuck with inventory they are overpaying for now and will have to sell at a loss if prices return to levels before the recent increase, said Mr. Barnett. He predicts prices will fall back to around $600 a ton in the fourth quarter as imports rise, the blast furnaces are repaired and the labor issue is resolved, and more steel is being made available in the U.S. market.
Part of the price increase is seasonal: Prices typically go up as steel-rich summer construction gets going. But prices are above even their level a year ago of $599 per ton. It isn't clear whether the increases will stick, either, once the temporary production problems are resolved, although the automotive and gas- and oil-drilling markets are still strong.
One other wild card: This week, a group of U.S. steelmakers filed a trade complaint to the International Trade Commission over imports from nine countries of pipes, tubes and other kinds of steel used in the energy market, known as "oil country tubular goods."
The complaint alleges that steelmakers in India, Philippines, Saudi Arabia, South Korea, Taiwan, Thailand, Turkey, Ukraine and Vietnam benefited from unfair subsidies that allowed them to sell below cost in a way that injured U.S. producers.
The complaint could be a sign that there will be more such actions, which tend to limit imports even before they are decided and therefore bolster prices. But if the complaint fails, imports could rise, exerting downward pressure on steel prices.
A decision is due within six months. While no duties can be imposed before then, importers typically reduce shipments when they expect a trade complaint to be filed, which was the case before the July filing.
In the first four months of 2013, U.S. steel imports were down 17.1% from a year earlier, to 10.6 million tons. Imports mainly declined in the period because of lower domestic steel prices.
LGL8054
10 years ago
Steel Price Forecast for 2014
By John Hall
The irony is not lost on anyone who watches the steel markets. The world is drowning in it and the industry that relies on it the most isn’t using it anywhere near what it should have been if we could have skipped the years 2007 and 2008.
Construction consumes nearly half of all domestic steel produced in the U.S., and excluding meager upticks in new housing permits, demand for steel in commercial building and infrastructure is abysmal, analysts say.
According to the U.S. Census Bureau, the value of residential construction in the U.S. is outpacing that of commercial by nearly six-fold (17.6% vs. -4% for the 12 months ending in June 2013). For commercial construction, the biggest building over the past year has been in lodging (whose total value increased 22.2%; among the weakest areas has been education and religious sectors). The value of new infrastructure over the past year also has been uninspiring, with highways and street construction losing nearly 13% in value over the previous 12 months.
Meanwhile, two key sectors--auto and energy--kept the domestic steel industry relatively vibrant in 2013 and promise to do so in the coming year, thanks to upticks in consumer demand and a domestic oil drilling spree, respectively.
Sluggish Demand to Keep Prices Down?
With few exceptions like hot rolled, prices for unfinished steel goods remained flat through most of 2013 and could remain so in the coming year as the world’s biggest producer (China) continues flooding the markets with steel amidst global sagging demand.
Anton_John_2010_HighRes_0.jpgAccording to IHS analysts, the oversupply situation has caused a price depression on everything from iron ore to finished goods throughout the global supply chain.
“We’ve seen some improvement [in pricing] but it’s sort of a dead cat bounce,” John Anton, Manager, IHS Steel Service, tells My Purchasing Center. Even the current uptick in prices is likely to be short-lived. “It was almost so low that it had to come up,” he adds.
Anton says North American steel production has actually been tightening recently because of notable shutdowns of sheet steel manufacturing, a furnace breakdown in Alaska and a major strike in Ontario. “There’s been just enough offline capacity to bring back pricing a little bit in the U.S., but nothing very vigorous or high in terms of pricing,” he says. “As far as the supply side goes globally, the Chinese are still over-producing. They dropped back marginally in July but they are still far above where they should be.”
Since June 2012, industry prices from iron and steel mills have dropped 7.91%, or 3.23% for each 1% fall in manufacturing costs, according to AlertData.com. Suppliers in NAICS 331111 lowered prices by an average of 0.45% in June 2013. Compared to a year ago, prices are down 7.91%. On a year-over-year basis, prices are falling at a rate of 9.07%.
Meanwhile, a “sustained” rise in domestic prices for hot rolled futures this year have caused imports to swell, which Steel Market Update expects to have a calming effect on prices going into the fall.
Metal Miner, which tracks the markets, warns buyers to watch for sudden price increases because steel happens to be one of the most volatile “commodity” metals today. Metal Miner’s index for raw steel, for example, shows prices beginning a precipitous plunge beginning in February 2013, only to ascend to a healthy clip in June. Meanwhile, the firm’s index for stainless steel depicts it as the “poorest performer of the major industrial metals,” due mainly to poorly performing nickel prices.
Even amidst overall net declining raw material costs (down almost 6% from 2012), supplier margins are taking a beating, according to AlertData. For iron and steel mills, for example, margins are losing $7.11 per $100 of market-valued output, after adjusting for price/cost changes and other economic factors. Offsetting this loss would require a price hike of 9.29%, according to the firm.
The likelihood of that seems, well, unlikely. The biggest reason: China’s continued steel production binge.
According to the American Iron and Steel Institute, the lion’s share of the nearly 600 million net tons of steel globally sits in China, steadily flooding world markets at low prices. The organization, in fact, sees no end to the country’s production binge until 2020. It doesn’t help that once-steel hungry Asia has waned in demand, and European orders are abysmal. One look no further than the announcement earlier this year that Germany’s second-largest steelmaker, Salzgitter AG (SZG), expected a pretax loss of $530 million.
According to the Institute, the overcapacity caused finished steel imports to surge in the U.S. in 2012, a 37% increase over 2010. What perplexes many analysts the most is how China can continue cranking out steel without literally losing its shirt. “If you’ve fallen in love with volume and you don’t care about profit, that’s a hobby, not a business,” says Anton, referring to the production binge in China.
“There’s no question the people losing the most money are in China,” he adds. “They’re not even covering variable costs. They’re spending $550 [per ton] to make steel and selling it for $530 but they’re not even covering the cost of materials, much less the interest payments.”
The situation has become so dire for the U.S. steelmaking supply chain that the Iron and Steel Institute a few months ago formally petitioned the U.S. Congress to intervene by enacting “more effective trade policies to keep our antidumping and countervailing duty laws against unfair trade strong.” The organization also implored Congress to strictly enforce trade agreements and trade remedy orders, “and use all means to prevent and address unfair trade and injurious surges, including … addressing the unfair export subsidy Chinese goods enjoy because of Chinese government currency manipulation.”
Anton, meanwhile, is more than cautious about any drastic changes in trade policy with China, mainly because the net impact domestically comes from non-Chinese importing countries that have been forced to sell cheap steel here. “The evidence would have to be found carefully because China may be distorting the rest of the world but the rest of the world is what’s hitting the U.S.,” he says.
“China needs to be broken of its over-production bias but I’m not a China basher,” Anton says. “They’re not doing anything different than what we saw many years ago among American steel producers, and by the way, those companies no longer exist. The U.S. was in love with volume and barely mentioned a profit. Now the U.S. industry very wisely worries about profits. You don’t worry about volume and forget price, you worry about both. The Chinese are worried about volume and not very concerned about profit and price.”
In July 2013, China ordered more than 1,000 companies across various sectors to cut production excesses; among them were steel, but the net effect was all but a blip, according to Bloomberg.com. “China traditionally cuts capacity between May and November every year,” says Anton. “In 2009, they cut capacity by 8%; in 2010, about 13%; and in 2011, about 17%. In 2012, they only cut about 4%. So far this year, they’ve only cut about 2.5%. This isn’t going to balance the market. We need 13-15% minimum. We need deep cuts to really balance the market and allow us some pricing power.”
Few analysts, if any, see light at the end of the dormant tunnel that is commercial construction, an industry the steel business has relied so heavily upon. When discussing buyers’ sentiment, buoyed recently by flat rolled futures, Steel Market Update notes that the construction segment of the economy has placed “a drag on optimism. Buyers and sellers of steel are being cautious not to be too optimistic about their company’s ability to be successful in both the current and future markets,” the website notes.
Meanwhile, robust growth in car sales and a frenzied domestic drilling spree have made the auto and energy sectors true success stories for steel. According to Anton, the automotive share for steel demand is up 5% this year and energy’s portion is up nearly 8%.
Short-Term Forecast: Something Has to Give?
Anton’s firm, IHS, paints the coming year as short on buying opportunities and long on risk in its June 2013 report. Global steel prices may be at historic lows--always good news for buyers--but with their backs to wall, manufacturers may be forced to cut production and implement 10-15% price increases some time in 2014. All bets are off if China throttles its steel-making machine, which could happen, the firm notes. The greatest risk is for buyers who procure steel heavily from Chinese producers.
“I have been seeing a good news-great news-terrible news scenario,” Anton tells My Purchasing Center. “The good news could be prices will rise next year but they won’t be exorbitant or destroy your budget. The great news is prices won’t rise at all. And the terrible news is, if prices don’t rise, someone is going under.”
If there is pity to be spent, use it on the Europeans, whose economies have stubbornly fought any meaningful recovery since the global meltdown a few years back. “Their [steel] volume after a partial recovery has been falling continuously,” Anton says. “Each seasonal peak is lower than the last. Each seasonal trough is deeper than the last. And they have a currency in danger of getting stronger.”
That said, Anton sees something “breaking” either next year or 2015. Even that is hard to say with complete confidence. “The situation was actually in crisis stage in 1999 and 2000 in the U.S. steel business, but it took another two years or so for many of the failures to occur,” he says. “Financially troubled steel mills have business plans that basically vow to stay in business until someone else shuts down. So everyone has incentive to stay in business and an incentive to make too much.”
While Anton isn’t predicting any mill closures and stresses American mills are far from the most likely candidates, such things are included in the outcome of some scenarios. “If the Chinese slow down, and that’s part of my forecast that assumes a ratcheting down of lending, prices could rally next year,” he says. “If they don’t slow down lending and the Chinese producers still produce at the same level, prices don’t go up next year and there will be a point when someone runs into a wall.”
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