The Stalwart

The Steel Primary

It's unlikely, but there's an outside chance that this whole Democratic mess could be over tomorrow. So how will Chinese steel affect the Pennsylvania primary?

Passing out red leaflets proclaiming that "China Cheats," steelworkers and company executives demanded that the next president enforce trade laws and confront China over what they regard as unfair trade practices.

"What China is doing rips the heart out of your community," said Sharon Mayor Bob Lucas, a retired steelworker who recalled the razing last year of a 300,000-square-foot pipe plant that employed 350 people. "... They can ship pipe across the ocean cheaper than it costs us to buy the raw materials to make it. ..."

(via Stamping out a living)

15kg of Steel Produced Per Month - For Every Human on Earth

Hard to imagine, but with Chinese steel capacity forging ahead with growth, we've recently hit the "15kg of steel for every person in the world" mark... per month. Clarksons shipping intelligence explains both this and the virtuous cycle for shipping which the growth of Chinese steel capacity entails.

How much is 15 kilos? Well it’s the checked suitcase allowance on some budget airlines and it’s also the steel production in July for every man, woman and child on earth. Yes, world steel production has finally broken the magic 100mt a month barrier and it’s an awful lot of steel. ...

Rapid growth of steel capacity.

Until 1999 the world steel industry was smelting around 64mt tons a month, with not much growth - just the occasional business cycle bump. Then China kicked in and added 25mt by 2006 which, along with 11mt from others (2mt from the EU, 3mt from Asia, 3mt from CIS and 3mt from the rest of the world) gets us to 100mt. But what are we doing with this extra suitcase of steel?

Slowing Chinese growth means higher Chinese steel exports.

Until recently the answer was mainly buildings, infrastructure, motor cars and ships. But recently the big growth area for China has been exports. But recently the big growth area for China has been exports. ... This year’s growth is not building the new China, it’s building new export markets.

Iron ore shipped in, steel shipped out... great for shipping demand

This is good for the shipping industry because most of the export growth is heading to Europe and the US. Flat rolled products exports to the EU trebled from 174,000t in January to 600,000t in June. That’s 15 Handy-max loads, or a ship every two days. Given the long voyage to the EU this must be soaking up lots of tonnage in the Asian area. Exports to the US are on the same track ...

For shipping China steel is in a virtuous circle. They suck in the ore and pump it out again as steel exports, both on long voyages. Which brings us back to the starting point. Do economies out side China really want an extra kilo?

Just how massive could Chinese exports of steel be? At 5 million tons per month already.

5mt a month is 60mt a year, close to half the output of Japan or the European Union.

What seems like small incremental exports for China are huge internationally. Slowing growth in China would of course just turn into a flood of steel abroad as China increasingly goes from importer to exporter.

Plundering Algoma Steel

The steel companies are at an uncertain point in the cycle where future prices are very much in flux, but the recent good times means that many of the companies have solid cash positions to rely on in the case of a downturn.  The blog Stamping Out a Living (All about the metal stamping industry!) takes a look at the case of Algoma Steel (AGA.to), where management is fighting back against big shareholders who want the company to distribute the cash pile and get leveraged in a bid to revive the company's flagging stock-price.  As Stamping Out a Living puts it:

Anyone who has anything to do with steel knows that the future is uncertain at the moment, and having a nest egg from the good times of a year ago could be the difference between success and failure in the long term.

Forcing the company to cash out the nest egg could be a death-knell.

Agreed.  We have nothing against activist shareholders trying to extract more value from the company in the form of reorganizations, buyouts, changing management, etc., but extorting lump-sum payments from the board (threatening to get them voted off), financed by equity or debt, does little to create value, and instead shifts it from future shareholders to today's.

The Ebay of the Steel Industry

The website www.steelsalvor.com has dubbed itself "The Ebay of the Steel Industry", and it does seem justified. The company allows buyers and sellers to conduct auctions on spare steel which may be lying around in warehouses all over North America. How does spare steel arise? From a recent article, here's an example:

On a specific lot of steel, here’s how it worked in one recent case. A cargo of cold-rolled coil came into the U.S. at a prime price of $34 per hundred weight. The original trading company was not willing to accept the metal in its condition because he felt it was not prime, but he was considering what is known as a retention offer at $18 per hundred weight. On behalf of the insurance company and the trading company, SteelSalvor posted the material on the web site, conducted an auction and got 172 bids, and sold the same steel – in its damaged condition – for about $33.50, reducing a $250,000 claim in favor of an $8,700 claim. This was a win-win for everybody involved, and the trading company avoided a boost in insurance premiums to boot. It’s a good example on the marine insurance side.

The rational...

About four years ago, a couple of entrepreneurial executives recognized the potential for broadening the market for secondary steel distribution via the internet. “We knew a lot of steel, including salvage, order overruns, market rejections, damaged or otherwise rejected material was moving through the distribution chain. We also knew it was moving maybe with exposure to typically a half-dozen or so companies per transaction. We developed a carefully prepared database which would open these markets to thousands more buyers and sellers,” Shapiro added, “and while I wouldn’t say we are an internet company, we are a marketing company that uses the internet.”

Great idea. There must be tons of similar auction opportunities for other materials, no pun intended. This is such a great idea that we at the Stalwart will donate some free advertising for this HOT! HOT! HOT! 69 tons of Auto Quality Galvanneal Coils:

Innovation Alive and Well in the Steel Industry

End of 2006, Posco will get its first FINEX technology steel mill online, in Korea. FINEX is Posco's name for its next generation steel manufacturing process which, according to this WSJ article, can cut costs by $40-50 per ton.

The 2006 Finex facility isn't much when compared to total production, only 1.6m tons, but perhaps any new capacity in India would also be next-generation.

As part of its blueprint to build steel mills with an annual capacity of 10 million tons based on its high-end technology FINEX, POSCO is consulting with the Orissa state government of India, which possesses high quality iron ore.

Here.