STEEL GRIPS online - Steel price volatility to remain in the short term

From STEEL GRIPS online
steel prices

meps:
Steel price volatility to remain in the short term

Aug 26, 2010
Over the past twelve months, steel prices have remained volatile as instability in the world financial system negatively affected market sentiment. Selling figures slipped marginally during the final few months of 2009. This was mainly due to seasonal reasons. Poor economic conditions continued to restrict the growth in end-user demand.

The MEPS - World All Products Composite transaction value climbed from under $US630 per tonne in November 2009 to approximately $US800 per tonne in May of this year - representing an increase of around 27 percent. Hot rolled coil average selling figures in North America advanced by almost $US220 per tonne. EU prices moved up by over $US190 per tonne and Asian numbers have risen by more than $US140 per tonne this year.

Increases in the flat products sector were mainly driven by growing raw material costs. Customers in all regions bought ahead of further perceived price hikes. Steel selling figures climbed quickly as production struggled to keep pace with the rapid growth in order volumes.

Rising scrap values pushed up prices for long products across the globe. The traditional spring bounce in market activity helped mills to recover these escalating input costs. Economic stimulus plans also boosted sales of steel products. Nevertheless, shipments to the construction sector, outside of China and Taiwan, remained subdued. Credit restraints also limited buying ability for many customers.

The hike in transaction values this year assisted mills in all countries to return to profitability. However, not all of the price increases announced by the steelmakers were fully implemented due to weak market conditions. Soaring production expenditure restricted their revenue, despite them introducing many cost saving measures.

Market sentiment turned negative by the end of the second quarter. Recent economic turmoil and sovereign debt issues in the euro zone forced buyers in western countries to restrict their purchases. Consequently, transaction values slipped. This is despite an increase in iron ore and coking coal costs for third quarter contracts.

Re-stocking by distributors during the first half of 2010 enabled steelmakers in the developed nations to bring previously idled facilities back on stream. Capacity utilisation rates have climbed from under 60 percent to over 80 percent since July 2009. However, steel production has expanded faster than real demand over this period.

Mills in most countries are expected to restrict output over the coming months to try to limit the negative impact oversupply is likely to have on the market. A fall in demand for raw materials is predicted as a result of reduced steel production. This, coupled with an anticipated drop in the quarterly contract price for iron ore in the fourth quarter, will, almost certainly, add to the downward pressure on steel transaction values.

Seasonally lower demand in the EU and North America for scrap during the winter months is likely to push prices lower for the metal over this period. This situation, plus slowing demand from stimulus projects in Asia, is likely to result in steel selling figures decreasing during the final few months of this year.

A slowing economic recovery could limit the consumption of steel in the short term. Distributors are unlikely to build up stock levels before the New Year. Consequently, further falls in transaction values are predicted during the final few months of 2010. However, a price crash is not anticipated as mill output cuts are expected to offset some of the negative pressure.

A pick-up in sales activity is expected early in 2011. Distributors are likely to re-fill depleted inventories as end-user demand grows. The availability of credit should improve as the economic climate strengthens. This will help to boost mill order books.

An increase in sales volumes could result in some supply shortages. This, coupled with anticipated rises in raw material costs, is likely to push selling figures higher during the first half of next year. However, reduced consumption from government funded projects could limit the size of the price advances. The outlook for the construction sector also remains negative.

MEPS