The US dollar (USD) has declined in value against the seventeen steel trading nations that we track. Of these 17, 12 have gained against the dollar over the past three months, 10 over the past month. Looked at over a one year period, the dollar has lost ground against 9 of the 17. The dollar has gained against all of these countries but one (South Korean Won), when looked at vs. five years ago.

currency-table1-2Table 1 lists the values of the USD measured in the currency of the 17 steel trading nations on June 27th, it reports the changes in, one year, 3 months and one month for each currency and is color coded to indicate strengthening of the dollar in red and weakening in green. The currencies that devalued against the dollar over the last three months include the Brazilian Real, -8.1%, the South Korean Won, -1.5%, the Russian Ruble, -3.1% and the Rand of South Africa, -3.0%.

Key currencies that have been gaining against the buck include: The Euro gained +4.3% against the dollar over three months and +2.3% over one month; the Canadian dollar, (+0.6% and 2.9%); the Mexican Peso (+5.7%, +5.5%); the Turkish Lira (+3.3%, +1.2%) and the Chinese Yuan (0.9%, 0.5%).

Changes in currency exchange are important to follow as they tend to shift material flow worldwide. For example; the weakening dollar together with a stronger Euro will cause the Turks to look to increase scrap flows from the US and reduce scrap buys from Europe. Finished steel goods should follow a similar methodology. Year to date net long product imports are running 33.0% higher than for the same period last year and for the month of May, net imports were up 37.2% y/y. Thus far the weaker US dollar has not softened the flow of imports.

The FED just raised interest rates ¼ point to 1.25% this month and expectations are that there will be one and possibly two additional rate hikes this year. One would expect that this action would cause the dollar to rise in value against a basket of currencies not the opposite. We will have to wait and see what happens, but most economists expect the dollar to reverse its slide in the coming months.

At Gerdau, we keep a close eye on the currency market because it has a profound impact on both the import and export of raw materials, semi-finished and finished steel. A strengthening USD is a “double-edged sword”, as it makes the US market more attractive other countries to export to the US and conversely imposes strong head-winds for the US to export its products to other nations.