EU
STEEL PRICES FOR STRIP FALLING - LONGS MAY SOON BOUNCE BACK
Further price cuts for both
flat and long products in European markets were widely expected this
month and values have duly fallen. The Summer holiday season is
usually a quiet period in the steel market. Nevertheless, the first
indications have appeared that the bottom of the current price cycle
may be nearing for long products. For strip products, the situation
is much less encouraging.
The economic environment remains generally
weak, casting a pall over end-user confidence. The French and German
economies are flagging and Italy seems to be heading into recession.
The steel stock overhang is proving persistent and is taking longer
to dissipate than had been expected.
The cost of scrap is often seen as a
leading indicator of steel prices particularly in long products
where it is the major raw material for many producers. A rise in
scrap values often heralds an upward move in the price of steel.
July has seen the first increase in scrap
charges for several months. Indicators show modest rises of $US5/10
per tonne in some key markets such as the West European export
trade. Prime grades in the US Midwest are up by as much as $US20 per
tonne. However, the bounce in prices was not universal Asian
scrap markets in particular remain lacklustre and it is by no
means certain that the advance will be sustained. Nevertheless,
there are other reasons to think that long product values may not
have much further to fall. There have been reports of an increase in
prices for globally traded billets something which is often a
precursor of bar and rod price rises.
MEPS average EU transaction figure for
long products currently stands at 353 per tonne. This is the
lowest since January 2004, when the remarkable upsurge that took it
close to 500 per tonne was just beginning. Since the peak of the
market was reached last October, the average long product price has
fallen by 146 per tonne or 30 percent. It now stands only about
50 per tonne above the low point of the previous price cycle.
Taking into account cost increases in the 2½ years since then
especially energy the bottom of the market could be close at
hand.
For flat rolled products, the picture is a
little different. MEPS current average EU transaction price of
484 per tonne is down by 118 per tonne from the peak. This is
a drop of only 20 percent. At its current level, the average flat
product price remains more than 100 per tonne above its low point
in the previous cycle it bottomed out at 365 per tonne in
October 2003. This may indicate that prices for flat products have
further to fall before the upward leg of the cycle takes hold.
If slab prices bear the same relationship
to flat products as billet prices do to longs, then it may be safe
to bet on a further decline: the international slab value has
dropped by as much as $US150 per tonne over the last four months.
Spot market numbers for iron ore and coal have also reduced. In
addition, ocean freight rates for ferrous raw materials are at a
two-year low. This may reflect some diminution in demand for
imported coal and iron ore but it probably has more to do with an
increase in the number of dry bulk vessels available to the market.
Although European mills continue to try to
cover this years sharp escalations in costs for iron ore, coal
and coke, their selling prices for strip products may still be some
distance from their floor.
