US authorities Relax Section 232
Steel selling values, in the United States, continue to be
among the highest in the world. Nevertheless, local steel manufacturers are
struggling to minimise the extent of recent price erosion, across flat and long
products. Falling scrap expenditure, weak purchasing activity and an uptick in
domestic production contributed to the latest price decline, this month. Hot
rolled coil prices are, currently, hovering just above the US$600 per short ton
mark. However, the reduced impact of Section 232 legislation has the potential
to exacerbate the negative pricing situation further, in the near term.
In mid-May, the US government agreed to eliminate the tariffs on Canada and
Mexico – with these countries dropping the reciprocal measures against US-made
steel. The introduction of trade barriers had a negative effect on cross-border
deals between the countries. This led to a widening price differential between
US and Canadian steel values - in particular those for hot rolled coil – with
Canadian figures falling at a faster rate than their US counterparts.
Canadian steel producers, who are heavily reliant on sales to the US market,
were finding their access increasingly restricted, due to the trade legislation.
In an attempt to plug significant gaps in their production schedules, mills were
forced to slash their local offers, to secure orders. The Canadian hot rolled
coil market quickly became saturated. Domestic delivery lead times declined to
one week, at one stage.
It is widely anticipated that the removal of the Section 232 tariffs should
provide Canadian producers some much-needed breathing space, by giving them the
opportunity to close the pricing gap on their US neighbours. The US authorities
also relaxed their stance on Turkish imports, by halving the tariff from 50
percent. It is likely that Turkish mills may redirect export volumes, from
Europe, to the more lucrative US steel market, as a result.
Many European steel market participants remark that Turkish shipments of hot
rolled coil to the continent, increased by more than 50 percent, in the first
quarter of 2019, compared with the figure in the preceding year. High import
penetration continues, despite existing EC safeguarding measures. Economic
growth is stalling in a number of European countries and volatile raw material
costs have put a strain on the profitability of regional steelmakers.
In order to stem further price erosion, ArcelorMittal announced its intention to
reduce supply from several of its Central and Eastern European steelmaking
facilities. Moreover, we have reports that the company has raised its list price
offers by between €30/40 per tonne. The consensus view of the majority of
attendees at the recent ‘Made in Steel’ event in Milan, was that the pricing
initiative, led by ArcelorMittal and followed by other mills, is likely to
minimise the extent of further price deterioration within the region.
MEPS expects downward movements in global selling figures to continue. However,
values are likely to be approaching the bottom of the current cycle. Due to
rising mill input costs, MEPS predicts a modest price recovery in late
summer/early autumn. Nonetheless, the recent escalation of trade tensions
involving the US and China, and continued Brexit uncertainty, will do little to
boost consumer confidence, around the world.
MEPS - International
Steel Review - May 2019
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