Steel Scrap, Iron Ore Hit Multiyear Lows as Slowdown Looms
Steel scrap prices were quoted at $138 per metric ton on November 9, 2015, a year-over-year decline of more than 55%.
Although steel prices have fallen globally, a stronger US dollar has made foreign-made steel more competitive compared to steel produced in the United States.
Chinese steel prices have continued to slide in November. Chinese steel mills lost $35 per ton on average in 3Q15.
Steel companies’ spot sales are more vulnerable to the volatility in steel prices. In this article, we’ll see how spot steel pricing is shaping up in the United States.
Lower steel demand from service centers is negatively impacting steel companies’ shipments. Almost all steel companies expressed concern over the lower service center buying activity.
The automobile and energy sectors are among the major steel consumers. However, steel demand from these two sectors has been trending in opposite directions for the last few quarters.
Looking at steel demand indicators, we see that construction activity has generally been strong in 2015, with spending in the United States exceeding $1 trillion for seven consecutive months.
China’s passenger car sales rose more than 13% year-over-year in October, according to data released by CAAM. This is the highest growth rate since December 2014.
If you’re an investor in any of the steel companies (XME), you should explore how the Chinese (FXI) steel demand is playing out.
The World Steel Association released its October steel production data on November 20, 2015. A big concern for the steel industry is a glut of steel in international markets due to overproduction.
Most steel stocks continue to trade near 52-week lows. U.S. Steel Corporation (X) has fallen more than 70% year-to-date.
Steel mills started cutting back on production. This should continue to weigh on the dry bulk sector, especially the Capesize and Panamax vessel freight rates.
October’s aggregate financing, China’s broadest measure of new credit and liquidity, came in at 476.7 billion yuan—a fall of 30% YoY and 63.4% month-over-month.
China’s real estate climate index was at 93.34 in October. China’s real estate climate index has been on a broad downtrend since February 2013.
China’s steel appetite is the major determinant of its iron ore needs. About 98% of the iron ore goes into making steel. The output fell by 3.1% YoY in October.
The iron ore inventory levels at Chinese ports can impact purchasing decisions. When the Chinese market (MCHI) rises, shipping stocks tend to rise as well.
Dry bulk shipping companies transport iron ore more than any other commodity. It’s important for investors to watch the shipments from Australia and Brazil.
While India could provide temporary relief to dry bulk shippers, its increasing domestic coal output doesn’t bode well for seaborne coal trade.
Dry bulk shipping vessel values usually show the expectations of future freight rates. Newbuilds’ rates gauge the long-term fundamentals.
The BDI (Baltic Dry Index) fell for 21 straight sessions to an all-time low of 498 on November 20. This is the lowest value since the BDI started recording in 1985.