Economy

Bits 'N Pieces

September 23, 2016

We received the following comments from a member of the financial investment community regarding the suits just filed by the domestic mills alleging the transformation of hot rolled to cold rolled or coated from China in Vietnam was just a way for China to circumvent U.S. trade duties. The complaint states that the transformation of the Chinese substrate was nothing more than “minor finishing operations.” This is what the note received on Friday said:

“Interesting. So if processing HRC into CRC/galvanized is a “minor finishing operation” as per the US Steel press release, why is the spread btw HRC and CRC/galv over $200 per ton? Makes no sense. Surely the $200+ per ton spread is supposed to reflect some significant value added, otherwise why would steel buyers be willing to pay such a large spread?

If I was Ford and GM, I would file a suit with the DOC alleging the price of CRC/galv should only be $5-10 per ton higher than the price of HRC since it only requires “minor finishing operations.” Seems to me the steel mills are desperate….”

We received the following note from a service center executive in response to our Thursday evening article about CSI and SDI filing a complaint against Vietnam:

“Hope all is well. I wanted to send you a note in regards to the motion filed by SDI and CSI. I am sure there are more coming in the short term. A lot of people placed orders with Vietnam and Turkey in June and July and that material will be hitting the docks in Q4. Would this circumvention order affect material already on the water? Could they find critical circumstances on this inquiry?

We are on a slippery slope as an industry—If this passes where does it stop? Are the long product mills going to go after Turkey and Mexico for using imported Chinese billet? We are all trying to compete on a global scale. If our government claims unfair trade then they should give us subsidies. Match fire with fire. I for one welcome if a country wants to transfer their wealth to us. Maybe I am in the minority on that thought.”

We also received a couple of notes earlier in the week complaining about one of the steel indexes that has been badly lagging the market. There has also been discussion about whether the CME Group should consider changing their HRC to be based on the Platts daily hot rolled index rather than the existing brand. We asked a couple of our futures trading people to respond and we got back, “My best guess is if the CME doesn’t adopt a more frequent index, the LME will.”

SMU would like to hear from you – if the CME were to change to Platts (and go with a daily index vs. the current weekly one) would that be a good thing or a bad thing? You can send your comments to: John@SteelMarketUpdate.com