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US crude steel output growth helped by 232

Jan 28, 2019 | 03:37 PM | New York | Yvonne Li

Tags  crude steel output, crude steel capacity, World Steel Association, Section 232, steel tariffs, steel quotas, US steel, steel prices hot-rolled coil


Crude steel production in the United States rose by 6.2% last year, outpaced only by China's growth of 6.6% and well above the 4.6% global rate.

The increase in US production was partly helped by the Trump administration's Section 232 tariffs, with the restraints on steel imports as well as quotas for certain nations triggering domestic capacity restarts and expansions and boosting US steel prices and mill profit margins.

Steel mills in the US churned out 86.7 million tonnes (95.6 million short tons) of crude steel last year, up from 81.6 million tonnes in 2017.

Meanwhile, world's largest steelmaker and consumer China produced 928.3 million tonnes of steel in 2018 compared with 870.9 million tonnes the previous year.

Last year was the first time since 2014 that US crude steel output grew at a faster pace than globally. There were only three years between 2011 and 2018 that US steel production growth outpaced the global growth rate: In 2012, 2014 and 2018, Fastmarkets AMM calculated based on World Steel Association data.

In the run-up to the imposition of Section 232 last March, the price of hot-rolled coil – a leading indicator for steel prices – rose strongly in anticipation of a tightening domestic steel market.

Fastmarkets AMM's daily US Midwest HRC index reached a nearly 10-year peak of $45.84 per hundredweight ($916.80 per ton) in July of last year, up from $40.03 per cwt in early March and $32.63 per cwt at the start of last year.

The run-up in HRC and other steel product prices - including for flat rolled, long products and pipe and tube - helped US-based steel mills reap enormous profits in the second and third quarters of 2018, also prompting a series of restarts and expansion plans by mills.

Last year saw the restart of 4.9 million tons per year of flat-rolled steel capacity, led by U.S. Steel Corp’s Granite City works in southern Illinois and JSW Steel (USA)'s Acero Junction facility in Ohio, analysts at Jefferies said in a note in mid-December.

Big River Steel has also said it intends to double capacity at its flat-rolled mill in Osceola, Arkansas, to nearly 3.3 million tpy, while Nucor Corp aims to nearly double output at its flat-rolled mill in Ghent, Kentucky, to nearly 3 million tpy. In late November, Steel Dynamics Inc announced it plans to build a roughly 3-million-tpy sheet mill in the southwestern US, with the location of the mill to be announced in the next six to eight weeks.

Altogether, the US steel industry has announced plans to build or restart 13 million tons of new crude steelmaking capacity between 2018 and 2021, 11.5 million tons of which is focused on flat-rolled products and the remainder producing long products, the Jefferies analysts wrote. In total, this equates to a 12% year-on-year increase in melt capacity compared with 2017, with much of the capacity addition to be seen from 2020-21, they noted.

Notably other possible growth projects at U.S. Steel, Big River Steel, JSW and BlueScope Steel could boost domestic steel production by a further 7 million tpy, the analysts said.

But the price of HRC has retreated following its run-up last year, partly due to investor fears of a supply glut in the coming years. Fastmarkets AMM's HRC index stood at $33.48 per cwt on Friday January 25, down 7.5% from $36.21 per cwt at year-end 2018 but still up by 2.6% from $32.63 per cwt at the end of 2017.


 

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