ALL PRODUCTS CARBON STEEL PRICE FORECAST – JULY 2009

WORLD (GLOBAL) - ALL PRODUCTS COMPOSITE CARBON STEEL PRICE FORECAST

As predicted, the MEPS- Global Carbon Steel price moved up by over 1 percent in July. Higher input costs forced local producers to implement advances in domestic selling figures, with varying success across the three regions and products researched. Strip mill categories recorded the largest gains. Inventory adjustment is almost complete, with some shortages developing. Consequently, many distributors increased their purchases with local mills. Delivery lead-times lengthened. Output restrictions were eased by some steelmakers. Sales to the automotive and bridge building sectors recovered slightly. However, end-user demand was lacklustre, particularly from the construction sector in most countries. Many customers are still working at reduced operating levels and taking extended summer holidays. Export opportunities from east to west remained low due to weak global consumption. Banks remained reluctant to lend to businesses, negatively affecting buying power.

Rising input costs are likely to force mills to push through additional increases in transaction values during the remainder of 2009. Distributors may buy ahead of further perceived price hikes as they attempt to refill depleted inventories. However, the summer slowdown in the west could restrict these advances initially. World steel consumption is forecast to remain subdued this year. Most customers in the EU and US will also keep their re-stocking efforts to a minimum in the run up to the financial year end. Consequently, the recovery in steel selling figures is expected to be restrained during the fourth quarter.

Many western consumers are likely to increase their purchasers of steel related products by early next year. Moreover, credit restrictions should reduce, stimulating demand across the supply chain in all regions. Further advances are, therefore, forecast for the first half of 2010 as the world economy emerges from the recession. However, this upturn is predicted to be much slower than the ones recorded in recent times because many companies will still be feeling the after effects from the recession.

EU – ALL PRODUCTS COMPOSITE CARBON STEEL PRICE FORECAST

The MEPS - EU All Products Composite transaction value slipped marginally in July. Strip mill prices increased as de-stocking came to an end, despite poor end-user consumption. Sales to the automotive and bridge building sectors recovered slightly. Some distributors bought ahead of the summer shutdowns in a bid to expand their availability for September. This, coupled with continued output restrictions, helped producers to obtain modest price advances for most flat products. However, a fall in scrap costs during June resulted in a significant decrease for long categories. Producers offered discounts in a bid to secure orders because construction activity was subdued.

The MEPS – EU All Products Composite transaction price is forecast to increase after the summer period. Rising raw material costs and some re-stocking are likely to put upward pressure on steel values. However, downside risks remain. End-user consumption is likely to stay low during the second half of this year. Oversupply may also become a feature of the market, once again, if local mills ramp up production too quickly. Pressure from imports could return in the fourth quarter if domestic transaction values move up significantly. These factors are expected to limit the size of any rises in selling figures in the final quarter of 2009.

A revival in the steel market is predicted for 2010 with transaction values moving higher during the first half of the year. Purchase volumes should grow as the economic climate improves and credit restrictions ease. However, we do not envisage a return to previous market conditions in the medium term. The recovery is likely to be slow. Therefore, prices are projected to remain below those in the growth years of 2006, 2007 and 2008 over this forecast period.
 

NORTH AMERICA – ALL PRODUCTS COMPOSITE CARBON STEEL PRICE FORECAST

The MEPS – North American All Products Composite transaction price moved up by almost $US30 per tonne in July. This was a slightly larger increase than we had anticipated in our June forecast. Rising scrap costs put upward pressure on steel selling figures. There was little or no import competition. Inventory levels decreased and service centres began to refill gaps in their stocks. Consequently, distributors increased their purchases with local mills. Delivery lead-times lengthened. US steelmakers continued to lift production - with crude steel capacity utilisation rates moving above 50 percent for the first time since November last year. However, the market remains weak. End-user demand is lacklustre, particularly in the automotive and construction sectors. Many customers are still working at reduced operating levels and taking extended summer holidays.

A rise in scrap values during July resulted in most US mills announcing significant price advances for both flat and long products in August / September. A lack of import pressure could help them to secure a large proportion of these increases. However, the summer slowdown could make it difficult for local producers to pass on the full amount to customers. Sales volumes from domestic producers are likely to increase as distributors begin to refill depleted inventories. Nevertheless, the recovery may be short lived. There is potential for raw material values to soften over the coming months. Underlying consumption is expected to stay weak throughout the second half of 2009. Most customers will also keep re-stocking efforts to a minimum in the run up to the financial year end. Consequently, we foresee a modest dip in steel selling figures during the fourth quarter.

The economic situation should begin to improve early in 2010. Moreover, credit restrictions should reduce, stimulating steel demand across the supply chain. Consequently, the steel price revival is forecast to resume in the first half of next year. However, this upturn is predicted to be much slower than the ones recorded in recent times because many companies will still be feeling the after effects from the recession.
 

ASIA – ALL PRODUCTS COMPOSITE CARBON STEEL PRICE FORECAST

The MEPS – Asian All Products Composite transaction price expanded by approximately 1 percent in July. This was in line with our June forecast. However, movements across the nine categories researched were mixed this month. Higher input costs forced local producers to implement advances in selling figures, with varying success across the region. Increases were noted in four products and the other five recorded decreases. The manufacturing, automotive and home appliance sectors improved in Japan, mainly due to the government’s economic stimulus plans. Car sales and construction activity strengthened in China. State funded schemes supported the recovery of long product shipments in Taiwan. Inventory adjustment across the region is progressing, with some shortages developing, particularly for strip mill material. Export opportunities remained low due to weak global consumption.

Higher input costs are likely to force mills to push through additional steel price advances during the remainder of 2009. Customers will, almost certainly, continue to refill depleted inventories as selling figures move up. Nevertheless, the rainy season in parts of Asia may dampen demand over the coming months. Some downside risks remain. There is the possibility that Chinese mills could ramp up production over the next few months. Consequently, increases in transaction values may be limited during the second half of this year.

An improvement in the world economy is expected at the start of next year. This should help to stimulate demand for steel related products and accelerate the revival across Asia as exports from East to West grow. Activity in the construction sector should also pick-up as government backed projects get under way. Consequently, we predict more significant advances in transaction values in the first half of 2010.
 

Source: MEPS - MEPS Steel Prices Online