Jul 30 2009
Major steelmakers in the US have announced a series of transaction price hikes over recent weeks for strip mill products. These are steadily being implemented. There is little import competition to prevent further increases being applied. Certainly, distributors are keen for the proposed rises to take hold as they will produce benefits in terms of stock valuation.
Nevertheless, market players are concerned that the price recovery might not be sustainable if the mills prematurely restart idled facilities. Service centre business is still down by 40/50 percent with only a small percent increase in activity, most probably due to the price advances. The economy remains depressed, leading to a persistently low level of steel consumption.
Canadian transaction values have bottomed, prompting us to record a number of rises this month. The domestic mills believe that destocking may be complete. They report that their order position has shown a strong improvement in recent weeks as customers try to fulfil their requirements in advance of the summer holidays. The threat of escalating prices also seems to be spurring on order placement. Nevertheless, distributors and end-users still anticipate relatively weak business conditions ahead and few are optimistic that demand will strengthen significantly for the balance of 2009. Imports from the US remain relatively low and offshore interest is absent.
The outlook in the Chinese market is quite positive. Producers have been obliged to lift domestic prices in order to compensate for rising input costs. However, soft global demand and uncompetitive offers continue to hamper export business. There is some unease that the mills will ramp up production over the next few months which could dampen market sentiment and cause oversupply.
In Japan, domestic steel orders are edging up, albeit slowly, aided by a small recovery in manufacturing industry and export sales. The government's economic stimulus plans have boosted activity in the auto and home appliance sectors. Stock adjustment for strip mill products is progressing well. Inventories held by local steelmakers and distributors, as end of May, fell by 3 percent compared to the previous month. Meanwhile, quayside stocks of imported flat products dropped by 6 percent in the same timeframe. Nippon Steel has announced its intention to restart one of the blast furnaces that was shut down as part of output restraints earlier in the year.
South Korea's Posco has stated that domestic prices will be held at the current level for the remainder of 2009, although the company does not rule out the possibility of lifting export values as overseas markets improve. A small recovery in local demand is expected during the second half of the year. The positive market conditions noted last month in Taiwan persist. Customers are restocking and some speculative purchasing is taking place ahead of further perceived price hikes. CSC will push up the values of hot and cold rolled coil for overseas shipments during the August/October period. The company is expected to impose further hikes in the home market come September.
Polish demand has not improved as the financial crisis cuts deeper. Prices, which have declined this month, are not likely to show any significant growth during 2009. Producers are carrying on with their output curbs. In the Czech and Slovak markets, the economic situation is worsening. Both government and private investment has dried up. The current dismal level of steel consumption is forecast to continue well into 2010. Selling values have deteriorated further, although the rate of collapse has slowed. Buyers believe that the bottom has yet to be reached.
In contrast, demand and prices are strengthening in the West European strip market as the destocking phase is all but over and buyers need to fill gaps in their inventories. Delivery lead times from local mills are lengthening and a surge in third country imports is unlikely due to the competitiveness of domestic offers. Several major mills have told customers they intend to lift basis values for the third quarter. However, some companies feel the move is premature. There are fears that producers may try to boost capacity too soon and the market will be unable to absorb the increased supply.
Source: MEPS