FLAT PRODUCTS

In spite of the sharp drop in scrap prices and increased foreign offerings, US transaction values have still not peaked. Supply remains as tight as ever and inventories are low. Customers lives are being made more difficult by delayed dispatches and ever extending delivery lead times. Certainly, demand is much stronger now across most consuming sectors. However, there are worries that credit problems are arising amongst users and this could lead to delays or cancellations of company expansions and construction projects.

The Canadian market generally is not as buoyant as that in the US. Nevertheless, building activity is stronger than expected. The automotive sector is performing at a satisfactory level. Producers are bullish for steel demand and prices through the third quarter. Supply is still restricted and some customers are not receiving the total volume ordered. We understand that Stelco is building hedge tonnage as they have labour contracts expiring on July 31 at both Hilton and Lake Erie works.

Recent new measures by the Chinese government to dampen growth in steel demand and to cool investment in the sector appear to have shaken market confidence. Domestic market prices have suffered as a consequence. Traders report that importers have not resumed purchasing and that, conversely, a great deal of re-exporting is underway. Japanese business sentiment has surged and brought with it a growth in steel demand. Local inventories have decreased sharply and there is now a distinct lack of material available.

Local consumption is expanding in South Korea. Posco continues to give priority to domestic customers. The price rises established for orders placed after April 19 remain in force. Further hikes cannot be ruled out. Although suffering some impact from the Chinese government's policy to cool down the overheating economy, steel prices in the Taiwanese domestic market are stable. Certainly, no panic price slump has been observed. However, export values have fallen.

All the EU mills will go for higher prices in the third quarter. Thyssen Krupp has announced €90/100 per tonne across its range of carbon strip products from July 1. At the time of our research, Arcelor had yet to state the amount of its period three rise. Corus has said the minimum hike for hot rolled coil will be £75 per tonne and cold rolled and coated coil will rise by £85 per tonne but no deals had been completed in early May, therefore our price is unaltered.

The rate of economic growth in Poland continues to gather momentum. Projections of steel demand for the remainder of 2004 are encouraging. In the Czech/Slovak Republics, there are shortages of material throughout the supply chain, which are causing concern. Import penetration is very low. Demand is outstripping supply. Not surprisingly, prices are still escalating.

LONG PRODUCTS

Along with the falling price of scrap, US steelmakers have reduced their surcharge but, at the same time, have raised basis values. Generally speaking, transaction figures are either stable or rising slightly. The situation is similar in the Canadian market.

Long product steel prices in China appear to be collapsing. The government's new macro policy, especially the tightened money supply, is impacting sharply on the construction sector. Market confidence has been severely damaged and has not improved following the holiday. Demand has diminished in a relatively short period of time.

Japanese consumption by housing and commercial construction has picked up for seasonal reasons. Weaker scrap charges have not prevented the long product producers from securing price increases during negotiations carried out in the last month.

South Korean sales are less buoyant than of late. Stocks of imported material are growing. As scrap prices continue to drift lower, customers are expecting some discounts on steel quite soon. However, local producers are likely to try to resist because the overall supply/demand balance of all steel products remains quite tight. Although Taiwanese demand is satisfactory, the recent steep price escalation has been halted and we can detect some negative pressure.

As EU scrap costs come off the boil, the recent violent price surge in the long product's sector has slowed or even come to a close in several European countries. The Spring weather has promoted more building activity in Poland. A huge road building programme has recently been announced. This should provide improved steel demand over the next few years. Czech construction output continues to accelerate at a record rate. Shortages of scrap have led to a reduction in output of long products. Supply shortfalls are severe. Costs for the building sector are now very high. Some enterprises who work on fixed price contracts could be in financial difficulties if the present circumstances persist. Unfortunately for them, further price growth is considered inevitable.

Source: MEPS - International Steel Review           Click here for MEPS World Steel Prices