Prospects for US Steel Industry

It is fair to say that the past year has been one of changing fortunes for the global steel industry in general and for the US steel industry in particular.  Although US demand for steel in the first half of the year was fairly subdued, a strong raft of anti-dumping legislation implemented in the latter part of 2015 meant domestic steelmakers enjoyed added protection.  Crude steel production in the first half of 2016 was stable year on year compared with import levels which were 28% lower.

 

The subsequent increase in domestic steel prices once again led buyers to search out value from overseas sources resulting in Q3 import levels being substantially higher, although still 2% below Q3 the previous year, and domestic production falling by 4%. This trend continued into October with production down nearly 5% year on year but early indications show that the general election result may have helped to halt this decline.

 

The surprise election of Donald Trump could have a profound effect on the way that the US trades with the rest of the world.  Trump appears to favour a more aggressive trade policy, regularly citing job losses as a result of imports from other countries, especially China.  As the US is already agile in its application of anti-dumping legislation when necessary, it seems likely that US policy going forward will be geared even further towards protecting domestic interests.

 

The recent high profile case of Ford cancelling its proposed Mexican production plant in favour of one in the US after continued criticism from Trump along with the president-elect already suggesting taxes will be imposed on imported vehicles suggest in the short term at least that US demand for steel looks set to improve and given Trump’s rhetoric, this growth is very likely to be supplied by domestic producers.

 

The long term effect of these protectionist policies is rather more uncertain but in November, the month of the election, US steel production increased by over 6% year on year, the first growth since May.  Going forward, the Australian Department of Industry is now predicting US steel production to grow by 6% this year and a further 13% in 2018 compared to the pre-election forecasts of 3% and 7% respectively.

 

It is just over a week before president-elect Donald Trump takes up his position in the White House and whilst the next five years are very likely to herald a much more protectionist stance to international trade for the US, aiding domestic steel producers in the short term, the long term consequence of this on the global steel industry and steel prices in particular is much more difficult to assess.  In the short term imports are likely to be at reduced levels, adding to the quantities of surplus steel on the international market with the commensurate downward pressure on prices.  Longer term trade restrictions are unlikely to lead to long-term prosperity with innovation and competitiveness on the global market likely to suffer.
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Prospects for US Steel Industry

US Steel Imports Fall Following Anti-Dumping Measures

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.

US Steel Imports Fall Following Anti-Dumping Measures

USA Imports Show Strong Growth – March 2015

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.

USA Imports Show Strong Growth – March 2015