STEEL GRIPS online - Gradual upturn in World steel prices over next twelve months

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Gradual upturn in World steel prices over next twelve months

Aug 27, 2009

The MEPS - World Composite All Products carbon steel price peaked in July 2008 at $US 1.160 per tonne. In the subsequent ten months the value fell by more than 50 percent to $US 562. However, the production curbs are beginning to bite as customers start to rebuild inventories in most regions of the world.

There are now clear signs that steel producers internationally will be increasing output to meet the anticipated higher market demand. This has, in fact, already started. Global production of steel in July 2009 was approximately 11 percent down on the equivalent month in 2008. In comparison, steelmaking in the first six months of this year was almost 20 percent below the figures recorded in the same period of 2008.

Since May, most steel prices have increased steadily - with the MEPS - World Composite figure rising by $US 49 per tonne (8 percent) over the past three months. Further growth in transaction values is forecast for the next twelve months. Steel consumption is expected to expand steadily. Inventory rebuilding is likely to develop throughout the supply chain from producers to distributors and end-users. Continued financial restrictions will, almost certainly, limit the rate of steel price growth in the future. Moreover, the current tight supply conditions are likely to give way to slightly more availability as the mills lift output to meet the new market conditions.

A significant proportion of the recent price gain has been made by the flat products producers across all regions. Government incentives have improved demand for automobiles through car scrappage schemes. The Chinese government has extended this activity to cover home appliances.

In contrast, recent price rises in the long products categories have been modest because much of the output from this segment is scheduled for the construction industry. This market sector has also received massive assistance from governments around the world. Unfortunately, it takes longer for approval of finance to translate into steel purchases due to the need for new design and often statutory approvals for major projects.

The month of May was the low point in the flat products sector in most parts of the world. Since that time, the North American market has shown the fastest rate of price growth. This is partly due to the savage cuts in output since the final quarter of 2008. Shortages are now being noted for several key products. There are reports of blast furnaces planning to restart in the near future to meet the expanding demand. This should lead to a slower rate of price escalation over the next twelve months.

Strong gains in flat product prices have been reported in Asia over the past three months as government schemes to encourage replacement of home appliances and motor vehicles kick in. However, supply has increased in China. Price reductions are ongoing and more are anticipated in the near term. This will diminish the rate of growth in prices in the Asian region over the next few months.

Modest flat product rises have been noted in the EU since May. August is a month of low market activity but transaction numbers are expected to be lifted in September and beyond. As in other regions, higher mill activity could restrict the rate of expansion later in 2009 and beyond.

The MEPS - World Long Products price bottomed out in April, after falling by 50 percent from July 2008. Over the past four months, this figure has increased by $US 34 per tonne (6 percent). Asia has been the best performing region - mainly due to higher activity in China, where strong investment in infrastructure development continues. Further gains in the Asain average long products price are anticipated during the course of next year as construction demand improves.

Recovery in the long products markets in North America and EU has been modest. In these two regions it is difficult to shortcut the approvals mechanism for major projects. As a consequence, the pick up in building and construction will take time.

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