What differences versus 2015 are expected?
THE GOOD NEWS FOR THE MILLS
- The year ends with an improving outlook due to rising steel prices, rather than a calamitous one with prices collapsing.
- Chinese steel mill exports drop about 23% to 85 million tonnes.
- International prices for iron ore and coking coal are fairly stable at depressed levels – which help the majority of the steelmaking community lacking its own iron ore supply.
- Steelmaking capacity reductions become sizable in China and the Advanced Countries. China’s top government policymaking group, the State Council, says it will provide assistance to closing down 100-150 million tonnes of excess capacity, including financial support for laid-off steelworkers.
- Steel sheet pricing is looking up early in the year:
- On the world market, the hot-rolled band export price is up about $25 per tonne in part because the price had fallen so low it was perceived to not be sustainable – i.e., well below the marginal cost of most producers.
- In the United States, hot-rolled band and, especially, cold-rolled and galvanized coil prices are up about $35 per tonne reflecting reduced foreign deliveries, especially from China after the preliminary results in the USA mills’ trade suits seem to pre-ordain the imposition of huge penalties against them.
- In China, as its citizens go on the one-week New Year’s holiday vacation, the steel industry circumstance seems to be improving as actions are being taken to replenish ultra-low inventories and buyers and sellers expect a normal strong seasonal steel demand recovery from mid-February to June. The HRB price is up about $25 per tonne.
THE BAD NEWS FOR THE MILLS
- The Chinese RMB is surprisingly weak versus the U.S. dollar (a WSD forecast), which boosts international trade tensions and worries of a true stagnation of the Chinese economy.
- Steel mill bankruptcies and plant abandonments are far more common.
- It’s difficult to sell pig iron at $175 per tonne, FOB the port of export, when the price for slab on the same basis is $210-220 per tonne. In general, the cost to convert molten pig iron to slab is about $90 to $100 per tonne without plant/corporate overhead expense; and, $110+ per tonne with the plant/corporate overhead expense.
- Suppliers of funds to the steel industry – i.e., banking institutions and investment funds – become even more reluctant to provide capital to steel companies (and, as well, many steel traders and steel scrap processors). ArcelorMittal’s success in raising $3 billion of new equity capital to help reduce debt and cut costs, which was announced on February 5, 2016, will impact other mills’ access to equity.
- Sizable foreign investment starts to flow into the Iranian steel industry now that the economic sanctions have been lifted. Might Iranian steel become the steel industry’s next “rising star”?
- Ocean bulk freight rates remain remarkably low, which boosts inter-regional competition.
- Steel scrap processors in the USA remain in a severe shake-out condition because of far too much shredder capacity and lessened export opportunities (in part because of the strong USA dollar and the rising steel scrap supply in China).
This report includes forward-looking statements that are based on current expectations about future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict. Although we believe that the expectations reflected in our forward-looking statements are reasonable, they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including among other things, changes in prices, shifts in demand, variations in supply, movements in international currency, developments in technology, actions by governments and/or other factors.
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