US tinplate industry in trouble

A recent article in The Economist highlighted the problems being faced by US manufacturers in the face of a strengthening dollar.

Indeed, with economic data for Europe increasingly surprising on the upside so far this year, and that of the USA increasingly disappointing, there are ever more questions over whether the positive economic data coming out of Europe is merely coming at the expense of that in the USA following the large shift in value of each region’s currency.

Put simply, US goods have become much more expensive in overseas markets while European goods have become relatively cheaper.

A look at the world’s tinplate industry, which has shown little-to-no global growth over the past decade, suggests that growth in one region at the expense of growth in another is very much a real phenomenon.

tinplate1

Growth in the global tinplate industry in recent times has been represented by Chinese growth coming at the expense of production cutbacks elsewhere. But the past few months have thrown up different nuances to this argument.

As per other flat steel products, US spot prices of tinplate fell sharply during early 2015, largely as a result of rising imports. The industry’s problems manifested themselves clearly in January with the announcement by US Steel that it was to “temporarily” idle its East Chicago (Indiana) tin mill.

The East Chicago mill was the smallest operating tin mill in the USA at the time of the announcement, however, accounting for just 5% of US tin mill capacity.

tinplate2

As such, the effect on producer pricing power will be limited, particularly as the industry has long suffered from overcapacity – the East Chicago idling is merely another cutback in a domestic industry that has seen a number of closures, and no expansions, over the past 10-15 years.

With the large strengthening of the dollar over the past nine or so months, the threat to remaining tin mills in the USA has only risen. The first quarter of 2015 has seen imports of tin mill products rise by some 25% above Q1 2014 levels, and imports are now roughly equivalent to 50% of domestic output. In turn, import penetration, i.e. imports as a percentage of total consumption, has risen steeply.

tinplate3

While US producers struggle, however, European tin mills have seen their bargaining position improve. Indeed, producer pricing power here is probably as high as it has been for about 3-4 years.

European exports to the USA have increased, helping to improve capacity utilization within Europe. It should be noted, however, that competition from CIS-based exporters has limited gains in some markets given that their currencies have weakened even further against the dollar than the euro.

In any case, the timing was favourable for European producers as they embarked on price negotiations for the six-month contracts covering the second half of 2015 not long ago. While spot deals for tinplate continue to weaken in dollar terms, European producers have been able to maintain, or even build upon, their margins in local currency terms.

Furthermore, with increased capacity utilization tightening European supplies somewhat, a typical uptick in seasonal demand from canneries over the coming months may even be enough to slow the fall in contract prices that has occurred over the past few years.

Sources: MBR, UN

This article was also published for Metal Bulletin Research in May 2015

 

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