Final Thoughts
Final Thoughts
Written by Tim Triplett
January 30, 2022
When I was a kid, watching the Olympics was a big feel-good event. The family would all gather round the TV eating popcorn and rooting for the Americans as they competed against the world’s best athletes for a medal and their photo on a Wheaties box. There was something pure and uplifting about the whole spectacle. As I settle in next week to watch this year’s Olympics broadcast from China, the popcorn may be hot, but the experience won’t be nearly as heartwarming. I just got done doing a little Internet research on China’s treatment of the Uyghurs.
The Uyghurs (pronounced wee-guhrs) are members of a largely Muslim ethnic minority group that live in the Xinjiang region of northwestern China. According to reports from various human rights groups, the Uyghurs are victims of horrific crimes against humanity perpetrated by the Chinese government ranging from internment in “re-education” camps to forced labor to genocide. China, of course, denies the allegations.
China’s Xinjiang region is rich in natural resources. It is a big exporter of agricultural products such as cotton, wheat and livestock. It’s home to vast amounts of oil and gas and other minerals, and accounts for 40% of China’s coal reserves.
Why is any of this relevant to steel in the United States? Because late last year Congress passed the Uyghur Forced Labor Prevention Act of 2021, which prohibits imports from China’s Xinjiang Uyghur Autonomous Region (XUAR) under the presumption they likely were produced using forced labor.
As Washington trade attorney Alan Price reported during SMU’s Community Chat webinar last week, the Biden administration has pledged to seize or block Chinese exports of products ranging from food to industrial materials under this new rule. This could eventually have an impact on steel, even if small amounts of raw material can be traced back to Xinjiang. Even if a product from China has passed through another country (think coated steel from Vietnam that originated as Chinese substrate). The record-keeping required may prove to be an Olympian task of its own.
“These issues are a lot more significant than fully perceived. Anyone with a complicated supply chain that flows through China should be concerned,” Price warned.
Another Acquisition for Nucor?
Nucor executives alluded to “another growth initiative in the pipeline” during their earnings call on Thursday. Said President and CEO Leon Topalian: “Stay tuned in the coming days. We will announce…moving up the value chain and expanding our offering in galvanized and painting.”
It appears Nucor is looking to reduce its exposure to the intense competition in basic commodity hot rolled coil. Added CFO Jim Frias: “Keep in mind, we’re a bit more hot-band centric than some of our competitors, and that’s where most of the imports have come in. And as you look at what we’ve done over the past few years, we’ve been adding galvanizing lines. We’re wrapping one up at Arkansas right now. We started one up at Gallatin the year before that. We’ve got one in Mexico now that’s consuming part of the substrate that comes out of our Berkeley mill. And we’re getting ready to announce another galvanized line soon. So we recognize that’s a part of our portfolio that would perform better if it were not quite so weighted to hot band.”
Contracts vs Spot?
With steel prices down by 30% so far and no way to know how much lower they will go, it seems logical that buyers would be reluctant to sign contracts that would lock them with particular mills. Speculation has been widespread that the spot market will grow this year at the expense of mill contracts.
Nucor executives on the call brushed aside that conjecture, reporting that they just finished “very typical” contract negotiations with service centers and other buyers, netting contracts near their targeted volume of around 80% for 2022. In fact, they said, interest in contract renewals was strong, including requests for increased volumes.
SMU Events
There’s still time to register for the 2022 Tampa Steel Conference, which is just two weeks away (Feb. 14-16). You can learn more about our program by clicking here or going to www.tampasteelconference.com
As always, we appreciate your business.
Tim Triplett, SMU Executive Editor, Tim@SteelMarketUpdate.com
Tim Triplett
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