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May 2015 | Galvanized Steel and Tinplate Market Tracker

US tinplate industry being hit hard

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With economic data for Europe increasingly surprising on the upside, and that of the USA increasingly disappointing so far this year, there are ever more questions over whether, given the large weakening of the euro against the dollar over the past nine months, European growth is merely coming at the expense of that in the USA.

Put simply, European goods have become relatively inexpensive in overseas markets, while those from the USA have become ever more expensive.

In the tinplate industry therefore, which has shown little-to-no global growth over the past decade, growth in one area must be coming at the expense of that elsewhere.

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. 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.

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 for European exporters 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.

Robert Cartman