MEPS - WORLD FLAT PRODUCTS' STEEL PRICE FALLS AS US MARKET STAGNATES

US mills continue to work at around 40/45 percent of production capacity with order intake extremely weak. Flat product transaction prices have dropped further. However, market players believe the figures could be quite close to the bottom now, so long as the steelmakers hold firm. The troubled auto and construction sectors show no sign of improvement. Consequently, service centre business activity continues to be slow and customers fear it might get worse as the summer vacation approaches. Many distributors are selling off inventory at very low resale figures. Currently, there are virtually no foreign offers and import licence applications are still falling.

Canadian transaction values are still in decline as suppliers try to stay competitive against US material. The market is depressed and consumer confidence is poor. Order intake at the mills is sluggish with no improvement in sight. They are presently operating below 50 percent utilisation. Customer stocks remain low, leading to requests for rapid deliveries. We can see no strong evidence of any imminent pick up in the market. Auto demand is almost nonexistent as Chrysler and GM work through their restructuring programmes. Construction, tubemaking and domestic appliances are also well below market expectations for the time of year. Imports are being quoted around $C20/30 per tonne below domestic figures but there are few takers.

Although overall Chinese market sentiment is much better than of late, the recent decrease in export activity, in conjunction with a growth in imports, is causing concern. Despite the fact that the domestic economy is slowly recovering, especially in the vehicle manufacturing and building industries, market participants still fear the possible development of a severe oversupply situation. However, the negative price trend for strip mill products has ceased as distributors begin to rebuild their stocks.

Market values are flat in Japan this month but there is still downward pressure because of lacklustre sales. Inventory adjustment is progressing, thanks to a small recovery in demand for cars and electronic goods. Stocks of strip mill products held by local steelmakers and distributors, as end of March, decreased by 6 percent, compared to February. Meanwhile, quayside inventories of imported flat products fell by just 0.8 percent, in the same timeframe. The mills continue to curb output.

In South Korea, Posco has unexpectedly announced a round of extensive price cuts, despite not having settled its annual iron ore contracts. The company said the decreases were to help downstream customers to improve their competitiveness. However, even after the reductions are applied, domestic steel prices remain above those of Japanese and Chinese imports. Dealers are complaining about this sudden devaluation of their abundant stocks in a climate of extremely weak consumption.

The Taiwanese market situation has improved as most end-users have successfully run down their inventories and now need to reorder. The mills report healthy rolling schedules for the remainder of period two. They are expecting prices to recover in the second half of the year.

Stripmill prices in Poland are unchanged when denominated in Euros but are slightly lower than a month ago when quoted in the domestic currency because of exchange rate fluctuations. Demand continues to contract with little market activity. Producers are carrying on with their output curbs. A similar situation exists in the Czech/Slovak countries, where end-user consumption has worsened. Germany, their major export market for finished goods, is suffering badly due to the economic crisis. Czech stocks remain too high for current demand. Price weakness persists, despite efforts by the local mills to lift values.

In Western Europe, market sentiment in the flat products sector has visibly changed. We can detect an air of mild optimism, albeit tempered with extreme caution. The downward pressure on steel prices appears to be abating, helped by the recent severe production cuts, which have limited availability. Nevertheless, underlying demand remains weak. Customers are still not placing orders far in advance but diminishing inventory levels have caused mill sales to pick up slightly.

Source: MEPS - International Steel Review - click here for a free sample copy.

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