Infographic: China’s property market remains a drag on steel demand

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China's property sector has been in shambles over the past few years and remains the biggest drag on domestic steel demand. The property market has trended downwards in the first quarter of 2024. With no major recovery signs in new home sales, China’s new home construction starts are likely to remain on the downwards trajectory in the foreseeable future.

The slowing property sector has triggered debt risks locally, leading Beijing to order local governments to downsize infrastructure projects, which has also undermined the growth momentum in infrastructure steel needs, adding to the demand slump.

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INDIA ELECTIONS: How the 2024 polls could impact India's top 5 steel, metals markets

India's ambitious growth plans, which require continuing investments in infrastructure, are expected to fully support the country's metals demand. Irrespective of the outcome of ongoing elections in India, no major policy changes are expected as India looks to maintain its economic priorities and keep the conversation moving on energy transition, industry sources told S&P Global Commodity Insights. This means India is seen to continue to boost spending on infrastructure, manufacturing and construction in the coming years -- all factors pointing to improved demand for steel, iron ore, coking coal and scrap. The country is also aiming to secure critical mineral resources like lithium as part of its broader clean energy plans. Infrastructure to continue driving steel demand Steel consumption is expected to be strong in the coming years, driven by infrastructure investments. Spending on infrastructure, which accounts for 25%-30% of steel demand, is expected to go up to 11% year-on-year in fiscal year 2024-2025 (April-March), according to the current government's interim budget announcement. "We would expect the Indian government to continue its policy of supporting the domestic steel industry which is an important component of [the current Prime Minister] Narendra Modi's Make in India program," Commodity Insights Metals Analytics Lead Paul Bartholomew said. The outlook for steel demand in the country looks bright, irrespective of the outcome of the general elections in June, sources said, citing evidence from the massive expansion plans major steel producers have initiated with one western India-based producer. Sources expect demand for steel to remain at high levels at least for the next 10 years. "Even if the incumbent government doesn't come back to power, there would be minor hiccups in policy for the near term, but steel markets seem to be comfortably placed for the mid-to -long long term going ahead," a Mumbai-based trader said. Iron ore policies seen unchanged amid industry discord India is expected to continue with its current export policy on iron ore despite demands of an export ban by secondary steelmakers. India's iron ore shipments to China are at elevated levels, causing price volatility and putting pressure on the margins of secondary steelmakers, who typically do not have integrated operations. As iron ore exports rise, the secondary steelmakers have to vie for limited supply or pay higher prices for premium ore. But industry sources said usage of low-grade iron ore, which India typically exports, is not high in the country. The lower grade iron ore, particularly that which has sub-58% iron content, is not useful for India, said Anil Patro, India Country Head at Ashon International, a global commodities trading company. As a result, exports of low-grade ore would continue, another source said. Secondary steel producers have been lobbying for an export duty on low-grade iron ore, but it is unlikely to happen as major steel players are also exporting this material from their mines, a source with an iron ore beneficiation plant said. As iron ore production is set to rise in the coming years, any incoming government would push for finalizing the policy on beneficiation -- a process that boosts iron ore content through concentration -- of low-grade iron ores. Coking coal to follow steel cues The strong push for infrastructure means India's coking coal demand is also expected to rise in the coming years, according to industry sources. India's coking coal demand has risen 10% from 51.3 million mt in 2019 to 56.5 million mt in 2023, driven by robust infrastructure growth and related steel demand strength, according to Indian commerce ministry data. Domestic mills have ongoing expansion projects, with India aiming to reach 300 million mt of steel production capacity under the National Steel Policy 2017. This will keep coking coal demand high as the country is reliant on imports of the key raw material, sources said. Scrap imports to improve as lowering emissions high on agenda While conventional steel raw materials see an expected rise amid potential policy continuity, India has committed to net-zero goals and will need other means to lower emissions from its steel industry. This includes low-carbon electric arc furnaces that use scrap as a raw material to produce steel. Indian demand for seaborne shredded containerized scrap is expected to improve in the near- term as buyers resume restocking after the elections, sources told Commodity Insights. "Buyers have been focused on hand-to-mouth procurement and there will be demand in the near-term as they need material," an India-based trader said. Platts, part of Commodity Insights, assessed imported containerized shredded scrap at $412/mt CFR Nhava Sheva May 24, down $3/mt on the week. India imported a record 12.11 million mt of ferrous scrap in 2023, up sharply from 8.37 million mt in 2022, according to commerce ministry data. Demand for imported scrap is expected to improve once the election results are announced on June 4 and buyers focus on pre-monsoon season restocking, market participants said. Eyes on strengthening lithium supply chain India has been making a strategic push towards securing vital resources for its burgeoning clean energy ambitions. This includes mineral lithium, which has been included under the critical minerals list of at least eight major global economies, including India. Lithium is used to build electric vehicles and energy storage systems, making it a key mineral in energy transition efforts. "I suspect we will see further auctions of mining rights and promotion of domestic processing development will move forward full steam ahead," said Cullen Hendrix, senior fellow at Peterson Institute for International Economics. The current government is following what looks like an "emerging playbook for large emerging markets: don't leave money on the table in terms of downstream processing. Seek to ensure Indian lithium is processed in India for the benefit of India's downstream green energy industries," Hendrix said. India in 2023 discovered about 5.9 million mt of lithium ore in the Jammu and Kashmir union territory. But as most of those deposits are clay deposits, their processing is seen as more challenging than the deposits found in brine or hard rock deposits. As commercial solutions to extract lithium from clay deposits emerge in a few years, India will begin real mining, according to sources. Until then, India has to explore partnerships for securing lithium supplies. India in January signed a lithium mining agreement with Argentina, the world's leading holder of lithium-based resources, in a move India's mining minister Prahlad Joshi said will play a crucial role in driving energy transition efforts and ensure a resilient and diversified supply chain for critical and strategic minerals essential for various domestic industries. Even as the outcome of the elections holds the key to how various policies will shape the next five years, India is expected to continue developing its critical mineral supply chain and fueling its economy through capital spending, a trend that will further bolster India's influence in global metals and minerals sectors over the coming years.


US Steel, Cleveland Cliffs spar over Nippon deal, misinformation allegations

US Steel's board of directors issued a public letter May 21 defending the merits of its proposed transaction with Japan's Nippon Steel against ongoing criticism from fellow US-based steelmaker Cleveland-Cliffs, which later released a direct response to US Steel, with both companies accusing the other of spreading misinformation. "The investment by [Nippon] has been under attack since day one by one of our competitors and unsuccessful bidder -- Cleveland-Cliffs -- who has been sowing misinformation to our stakeholders in a relentless and unbridled effort to derail the transaction," US Steel said in a statement. "While Cleveland-Cliffs is pushing false rumors to influence the market into believing we are working to unwind the transaction, nothing could be further from the truth." Following the publication of US Steel's letter, Cliffs released a response intended to address "the inaccurate allegations published by the US Steel board ... regarding its doomed attempt to sell its company to a foreign buyer without [United Steelworkers] support." "At Cleveland-Cliffs, we only deal with transparency," CEO Lourenco Goncalves said in a statement. "It is unfortunate that the US Steel board of directors is just now realizing that it announced an un-closeable deal and is trying to blame Cliffs for its terrible decision-making." US Steel received an unsolicited acquisition proposal from Cliffs in 2023, triggering a strategic review process where US Steel began soliciting other proposals. In December 2023, the Pittsburgh-based steel producer ultimately rejected Cliffs' bid and accepted a higher all-cash bid from Nippon valued at $14.1 billion and $55 per share, with a total enterprise value of $14.9 billion when accounting for Nippon's assumption of debt. Nippon's proposed acquisition of US Steel, which is currently proceeding through customary regulatory approvals, has been met with opposition from union workers and many political leaders , most of which have cited disagreement at the prospect of a foreign company purchasing a US steelmaker. The transaction has already been approved by US Steel's board of directors and EU regulators . Goncalves has repeatedly voiced his opposition to the Nippon-US Steel transaction, with his most recent public comments made during a press event at the American Iron and Steel Institute's annual general meeting earlier in May. US Steel and Cliffs are the only two remaining companies that operate blast furnace steelmaking facilities in the US, which remain key suppliers to the automotive industry. US Steel's defense In its May 21 letter, US Steel said it sought to "correct the record" on what it called a "long-running misinformation campaign." "Both Nippon and US Steel remain as fully committed as ever to completing the transaction that will protect and grow US Steel for generations to come, bolster competition and innovation in the American steel industry for the benefit of American consumers and enhance US national security," it said. US Steel said it approved Nippon's bid after a lengthy review process that also fairly evaluated Cliffs' bid. "The board found that the significant antitrust approval risk and associated valuation implications from a deal with Cleveland-Cliffs, among other risks, made their cash and stock proposal inferior to the higher, all-cash offer presented by Nippon," US Steel said. "Those antitrust and divestiture risks have subsequently been confirmed by multiple, independent sources." The steelmaker said Nippon's potential investment in US Steel would promote domestic steel industry competition, national security, domestic jobs and the communities in which it operates. Cliffs' rebuttal Goncalves said Cliffs has not publicized any information that could be described as "misinformation." "The key piece of 'misinformation' has been the US Steel board of directors insisting that the [United Steelworkers] had no veto power, " he said. "That 'misinformation' remains on US Steel and Nippon Steel's deal website." The USW endorsed Cliffs' bid to acquire US Steel and has expressed skepticism regarding the impact of a potential acquisition of US Steel by Nippon, with negotiations stalling among the parties . US President Joe Biden said in April that he believed US Steel should remain "a totally American company," while potential presidential candidate Donald Trump said in February he would block Nippon's purchase of US Steel. Goncalves referenced the stances of the USW, Biden and Trump in Cliffs' statement. "With a USW-represented facility, you are not entitled to sell to whomever you please," he said. "The board of directors of US Steel failed its stockholders in this 'strategic review process,' and is attempting to blame Cliffs for its own self-inflicted disaster."


Tata Steel signs connection offer with ESO to power new 2.3 million mt EAF

Deal to build infrastructure to power new plant by 2027 Will decommission BFs in 2024, build EAF to cut CO2 by 5 mt/year EAF will use scrap, making site UK's lowest carbon steel producer Tata Steel has signed a connection offer with the Electricity System Operator that involves National Grid building new infrastructure to be able to power the largest UK steelmaker's new 2.3 million mt electric arc furnace by the end of 2027, it said May 20. This would be an important milestone for Tata Steel UK in its path toward low-carbon transformation as it will ensure the company has one of the key infrastructure in place to operate the new EAF. Tata Steel had announced that it will decommission both blast furnaces at Port Talbot in 2024 and build a new EAF, reducing CO2 emissions by 5 million mt/year. Tata Steel expects to place equipment orders for the EAF by September, start construction by August 2025 and produce liquid steel by end-2027. During the interim period, the company will send to the UK slabs for rerolling from its Netherlands site, a move not approved by the unions due to the possibility of 2,800 redundancies and fears that the new EAF would never happen. Unions did not reply to S&P Global Commodity Insights for a comment. Tata Steel's Port Talbot site at Margam is served by a 275-kV substation linked to the larger 400 kV Swansea North substation. Swansea is linked to the southwest Welsh coast by four high voltage power lines to Pembroke docks, home to RWE's 2.2-GW gas-fired power station -- the region's largest by some way. Future power flows to and from Pembroke are set to increase once the 500-MW Greenlink Interconnector to Ireland is completed by end-2024. Beyond this, the Crown Estate's Celtic Sea Offshore Wind Leasing Round 5 was launched in February for up to 4.2 GW of floating wind in a first phase off the coasts of south Wales and southwest England. This has led to the Future Port Talbot project, transforming the port into a hub for floating wind farm manufacturing. Tata's UK blast furnaces have an installed capacity of 5 million mt/year, but in the last few years it produced 3.2 million mt/year and is the UK's biggest single carbon polluter. The UK produced in total 5.62 million of crude steel in 2023, according to the latest data. The blast furnace and basic oxygen furnace process releases the highest carbon emissions: 2.33 mt of CO2 emission per ton of crude steel. The direct reduced iron and electric arc furnace (DRI-EAF) process releases 1.37 mtCO2e/mt. The scrap steel and electric arc furnace (scrap-EAF) process releases the lowest carbon emissions at 0.66 mt of CO2. In Europe, 57% of steel is produced via the BF route that uses coal as a raw material and the rest from EAFs that use scrap as a raw material, so many European steelmakers are switching their production routes. Hot-rolled coil prices in the UK fell in the week to May 16 as trading activity remained low and distributors started to offload ex-stock material at competitive rates. Platts, part of Commodity Insights, assessed UK HRC down GBP5/mt on the day at GBP605/mt basis DDP West Midlands May 16.


Treasury updates guidance for IRA's US-made tax credit bonus

Establishes an 'adjusted percentage rule' for US-manufactured components New safe harbor approach could make process simpler The Biden administration has released updated guidance for developers seeking to qualify clean energy and battery storage projects for a domestic content tax credit bonus under the Inflation Reduction Act. The law grants a 10% bonus on energy production tax credits and up to a 10-percentage-point boost to the investment tax credit rate, provided that 100% of the steel and iron used in a project is domestically produced. A minimum percentage of a qualifying project's components, or manufactured products, must also be produced in the US. Project owners seeking to qualify for the full bonus must comply with the law's prevailing wage and apprenticeship requirements. In May 2023, the US Treasury Department and IRS issued initial guidance for the domestic content bonus that established a safe harbor for developers in calculating the domestic costs of certain manufactured components, such as those for utility-scale solar systems, wind generators and battery storage systems. The safe harbor option allows project developers to avoid obtaining direct cost information from suppliers. Recognizing that most energy projects will rely on at least some imported products, the guidance established an "adjusted percentage rule" for manufactured components. For qualifying facilities that start construction before 2025, excluding offshore wind projects, the adjusted percentage — or required percentage of US-manufactured components — is 40%. That requirement rises to 45% for projects starting construction in 2025, 50% for those starting in 2026 and 55% for 2027 and beyond. Offshore wind projects start out with a percentage requirement of 20% for 2024, and reach the 55% rate for projects starting construction in 2028 and beyond. Further cost clarity The Treasury and the IRS said the May 16 guidance is meant to provide further clarity on the safe harbor option for developers. The guidance creates a new elective safe harbor option that allows clean energy developers to rely on default domestic cost percentages provided by the US Department of Energy for "an exhaustive set of manufactured products and their components." Projects using components that were not listed by the DOE can still qualify for the bonus, the agencies said. The new guidance also clarified that hydropower and pumped storage facilities may qualify for the domestic content bonus. "Today's new safe harbor approach will make it simpler for more companies to take advantage of this powerful incentive and support good-paying American jobs," White House senior climate advisor John Podesta said in a statement. Under the DOE's default calculations, for example, some 37% of a solar PV module cell's costs can be considered domestic. Wind turbine nacelles and blades for onshore projects have default domestic costs of 47.5% and 31%, respectively. Grid-scale battery cells are assumed to have 38% domestic costs. Market impact The American Council on Renewable Energy (ACORE), a trade group that represents US clean energy developers, welcomed the updated guidance. "ACORE appreciates the improvements that were made to the initial guidance, which our analysis over the last year has shown should help facilitate a swift and sustained transition to domestic manufacturing," ACORE President and CEO Ray Long said in a statement. "Of particular note is the amended safe harbor approach, which intends to remove unnecessary burdens on taxpayers by allowing them to reference default cost percentages." However, analysts at Roth Capital Partners LLC said the firm continues to expect that US-made solar PV cells will be "practically required" for solar projects to secure the domestic content bonus, "likely to the dismay of the industry." As for wind, "multiple configurations" are possible to qualify for the bonus, Roth Capital said. Based on the DOE's complete list of cost calculations, grid-scale battery storage projects could potentially reach 40.9% domestic content and qualify for the domestic content in 2024 without using domestic battery cells, Roth Capital noted. "However, all other [battery storage] manufactured products would have to be produced in the US to clear the 2024 40% domestic content hurdle," the firm said. "It's unclear to us at this point if this is realistically achievable." Battery cells will likely need to be produced in the US to qualify for the bonus in 2025 when the domestic content requirement steps up to 45%, Roth Capital predicted. In response to the new guidance, Fluence Energy Inc. noted that its utility-scale Gridstack Pro product line — with two- and four-hour system configurations — would allow project owners to qualify for the domestic content bonus. Production in the US is on track to start in 2024, with customer deliveries expected to begin in 2025, the company said in a statement. "Since the original guidance was issued in May 2023, Fluence has advocated for the Treasury and IRS to value US-manufactured battery cells as a critical part of US-manufactured battery pack products," John Zahurancik, president of Fluence Energy's Americas division, said in a statement. Platts Connect: News & Insights (