Following a steady recovery from the financial crisis of 2008/2009, the US economy is now at a stage where the US Federal Reserve has been able to double interest rates from their historic low of 0.25%, where they have been for the last seven years.
This recovery had been filtering through to an increase in apparent demand for steel in the country with the total in 2014 12% above that of the year before and an 81% increase on the total in the trough year of 2009. This trend does not seem to have continued into this year, however, with the latest forecast for 2015 showing a 3% decline when compared to last year.
What’s more is that so far this year this reduction in demand has been most keenly felt by domestic producers with US crude steel production falling by 10% in Q3 and 9% so far this year to date. At the start of the year, the strength of the US dollar and general health of the economy had encouraged a large growth of imports with Q1 up an incredible 21%. The US government has been quick to recognise the danger to domestic suppliers, however, and have erected trade barriers against cheap foreign imports. This action has been successful and we have seen a 12% decline in imports in Q2 and a 20% crash in imports by Q3. This means that year to date, US imports have declined by 5% which is likely to fall further before the year is out.
The largest decline has been seen in imports from Russia which halved to 587K tonnes in Q3. Other big declines have been seen in shipments from South Korea, down 38%; the UK, falling 57%; and Italy, down 49%. Shipments from China have also declined, falling by 29% but at 555K tonnes, they remain significant with some 164KT of CR flat products being imported along. This helps explain why on Wednesday, the US slapped import duties of up to 227% on imports of cold-rolled flat steel from China.
Although imports into the US from most origin countries declined, shipments did increase from Brazil, who much like China, has been exporting increasing amounts of steel due to a weakening economy hitting demand internally and a depreciating currency making their products comparatively cheaper. Uniquely, the country has also been benefiting from ever lower costs of locally sourced raw material. Overall, imports of steel from Brazil grew by 9% in Q3 to 1.2M tonnes and semi-finished products, which have traditionally dominated imports from the country, have been declining with the growth coming instead from increased imports of hot rolled coil, cold rolled flat products and galvanised flat steel products.
Whilst the decline in US steel demand is of some concern to local producers, the agility and fervour with which the government is able to protect the industry against perceived unfairly priced material being imported from abroad offers a level of protection for them and at the same time likely to increase displaced tonnage hitting the markets of other countries, particularly within the EU where anti-dumping decisions are less rapid.
In a year which has seen faltering growth from many emerging economies and continued weakness in Europe, it has been the US that has driven world economic growth. In 2014, US GDP increased by 2.4% as the country continued its recovery. This growth has resulted in an increase in demand for steel and whilst steel production in the country increased by a steady 2%, much of this demand growth has been supplied by increased imports which were a whole 37% higher than in 2013 as the strengthening dollar and growing economy, combined with some softening in demand from other countries has made the US a very attractive destination for overseas producers.
In 2014 we saw growth from all major sources of imports but the largest increases have been seen from countries further afield so whilst imports from Canada and Mexico were only up 10% and 14% respectively, imports from the EU increased by 45%, mainly driven by supply from the UK, imports from South Korea were up 43%, imports from Turkey increased by 83% and imports from India grew by 46%. Previously we have described how a slowdown in Chinese demand has led to an increase in exports from China and predictably the attractive US market has also seen imports rise from China, increasing by 62% year on year. The Chinese producers have been targeting very specific products, however, with imports of Chinese cold rolled coil increasing by three times and imports of hot dipped galvanised steel increasing by nearly four-fold.
The sheer quantity of increases from these countries is remarkable but one source country stands out in particular US imports from Russia increased by an incredible 150% to record a figure of 4.2MT which makes Russia the fourth largest supplier to the US behind just Canada, South Korea and Brazil. As far as products are concerned, the largest increase in tonnage from Russia has been steel slabs, which doubled during the year but potentially more interesting is the fact that hot rolled coil imports from Russia increased by an astonishing 25 times to register a tonnage of 850KT. Given the strained relationship between Russia and the US this situation is perhaps surprising but the deterioration in the Russian economy and the collapse in the Russian Ruble must make US markets very attractive to Russian producers.
So far this year, US Imports in January were 37% above those of the same month last year which indicates that this dynamic shows no sign of abating in the short term but it would not be surprising to see the country start to erect trade barriers on certain products in order to help protect domestic suppliers.