FLAT PRODUCTS

US transaction prices continue to soar as producers implement a combination of basis price rises and higher surcharges. Material is in short supply. Service centres are limited on the tonnage they can purchase from domestic sources and are having to rely on offshore supplies for a proportion of their material. Fortunately for them, the sky high prices are now attracting more imports. Stock holders can pass on the mill increases without difficulty. End - users are hedge buying to such an extent it is impossible to judge the level of real consumption. This could pose problems later in the year if inventories become overloaded.

Currently, there is a wide range of prices being offered in the Canadian market, not often seen in the past. From the beginning of March, domestic mills introduced a surcharge of $C95 per tonne to compensate for the surging costs of raw materials. Transaction values are described by market players as 'insane'. Steel output is suffering due to a lack of scrap. However, underlying demand is far from strong and service centres are proceeding with extreme caution, lest they get caught with stock they cannot sell on.

The speed of price escalation in China began to slowdown at the end of February. Baosteel announced relatively small increases of RMB 300/500 per tonne, depending on product, for second quarter deliveries. Currently, inventories are high and the pace of business has fallen off. This is putting pressure on distributors to off-load material at discounted resale values. End-users have, in some instances, cut manufacturing output while they wait for lower cost steel. Surging import prices have curtailed the enthusiasm of traders and quantities have recently been reduced.

The supply/demand situation in the Japanese home market is tight, thanks to an expansion in overseas sales and a lack of raw materials. Nevertheless, domestic inventories and stocks of imported strip products at the docks, at end January 2004, increased marginally compared to the previous month.

South Korean domestic demand is expanding. Posco is controlling exports of all products and giving priority to local customers. The company will raise prices for April/June shipments to Japanese clients by ¥5000/10,000 per tonne but, so far, domestic values have been kept well below International levels.

CSC had already prepared Taiwanese buyers for a further round of price advances in the second quarter. These have now been announced and range from $NT2300 to $NT3200 per tonne, depending on product. Supply remains restricted and the steelmaker has agreed to reduce its export allocation from 30 percent of production to 24 percent in 2004.

A combination of good export opportunities, shortages of raw materials and continuing upward pressure on mill input costs has created a very tight supply situation in the EU market. During second quarter settlements, buyers found that prices, and in many instances quantities, were non-negotiable. Delivery lead times are now out to period three. Customers, desperate for material, are placing orders for July/August not knowing what they will have to pay at that time but expecting it to be anything between €30 and €70 per tonne more.

In Poland, manufacturing output carries on improving at a fast pace. Projections for the rest of 2004 are encouraging. Czech/Slovak domestic steel demand remains at a good level as the economy continues to thrive. We have noted some major upward price movements since our February report. Mill order books are full and it has rapidly become a 'sellers market'. Delivery lead times have extended to end May/June but mills are reluctant to accept business because they feel they may get better prices if they delay the deal.

LONG PRODUCTS

Improving demand, plus the need to recover high scrap costs, has driven US and Canadian long product producers to seek more price increases.

There are signals that suggest a slowdown in Chinese construction activity due to the government's efforts to slow the economy. Cancellation of some new projects could offset a traditional seasonal upturn in the North of the country. In the immediate period following our latest research programme, prices have started to decline.

Japanese sales of long products are satisfactory. Developments in the IT industry have created a need for new factories and this is helping building activity. South Korean consumption is steady at a good level. Local mills are focusing on supplying domestic requirements. With raw material in short supply and expenditure so high, many Taiwanese producers have been forced to reduce output. Prices have, once more, moved sharply upwards. However, demand is expected to diminish in the medium term.

EU mills continue to try to expand supplementary charges due to significant increases in transport, energy and raw materials. Several steelmakers, believing that these higher input costs cannot be transferred to the market-place, have cut production. Steel prices have escalated. Buyers report values climbing virtually every day. Fears are growing that construction activity might be harmed through a shortage of bars/sections and an inability on the part of contractors to obtain steel at workable prices. Despite predictions to the contrary, Polish building demand has, so far, failed to recover. Nevertheless, steel values continue to show positive movements. The Czech Republic is enjoying high rates of growth in construction output. Demand for long products is holding up well.

Source: MEPS - International Steel Review