MEPS - EU AVERAGE CARBON STEEL PRICE FORECAST FOR SEPTEMBER 2004

Over the past few months our forecasts for flat products have been lower than the actual negotiated figures. This has not only been a surprise to us but also to most steel producers. We have seen profit upgrades from many of the major EU steel mills in recent weeks as a result of the higher than expected prices obtained in the market. Rising scrap costs over the period changed market sentiment for all product categories over the period. As a consequence, some steel selling prices rose more than anticipated.

EU real demand remains rather subdued in the flat products sector. Nevertheless, customers are increasing their order volumes to avoid the possibility of shortfalls in supply. Many mills are putting customers on allocation and, are still late on a large proportion of their deliveries.

We believe that further small gains are probable in October agreements for the strip mill products. A modest rise is also anticipated after the next round of negotiations in December for first quarter deliveries. In our opinion these will be the last increases in this cycle as import volumes rise and the steelmakers start to catch up on their backlog of deliveries.

The quarto plate market is firmer than the strip and the shortages are more acute. This leads us to believe that the high price regime may extend into the Spring of 2005. A decline in values is then likely to follow over the next few months.

Double digit percentage price rises were put in place, for structurals and rebar, between our last research in July and this month's investigation. These price hikes were due to a massive upturn in the cost of scrap early in the second half of the year - to a figure much larger than we predicted when we produced our July forecast. Scrap surcharges rose € 90 per tonne over the past two months.

Scrap costs are likely to move into decline once again in the near term. Consequently, we believe that transaction prices for all long product categories will start to slip by the turn of the year. A slowdown in the demand for long products for construction, for seasonal reasons, should also have a negative effect on prices in the medium term.

Source: MEPS - STEEL PRICES ON-LINE (regional steel price tables & forecasts)