MEPS EXPECTS ITS GLOBAL STEEL PRICE TO HAVE PEAKED IN MAY

Although US mills continue to boost output, service centres report a minor softening in demand as they head into the summer. Overall, the recovery is still looking quite fragile, with only the automotive sector showing any sign of real strength. We continue to monitor some upward developments in transaction figures for strip mill products. However, prices appear to be reaching a plateau. With delivery lead times still relatively short, distributors are able to keep their inventories quite low without running the risk of supply shortfalls.

The Canadian steelmakers report strong activity with full operations through May. Order intake remains good, although slightly reduced from the very high levels of the first quarter. Customers are saying that demand is somewhat weak and continue to buy only for their immediate requirements. However, automotive schedules are moving well ahead of 2009 and construction is gearing up a little early due to the mild spring season. Offshore importers are concluding some modest business, mainly in the west of the country. Local producers have gained small transaction rises over the last four weeks and expect that pricing will move higher next month, reflecting soaring costs for scrap and iron ore. However, buyers feel that values may be nearing their peak, pointing out that, overall, the recovery remains tenuous.

In China, the national authorities' measures to cool the economy have negatively impacted on prices over the last month. Moreover, steelmakers' stocks continue to climb and some downstream consumers still have tonnages purchased when values were lower. Overseas business has declined as demand in major export markets remains soft.

Although there are no firm signs of real revival in Japanese domestic steel consumption in the general market, that from overseas is strong. Export volumes so far this year are at record highs. Local prices continue to firm as the mills try to compensate for their considerable outlay on raw materials. Inventories are better balanced. However, quayside stocks of imported flat products, as end April, grew by 7.6 percent from the previous month.

As was widely anticipated, Posco and other local producers have adjusted South Korean values sharply upwards as the costs of imports such as iron ore and coking coal are ramped up. The decision was heavily criticised by major original equipment manufacturers as they fear it will dampen any growth recovery. Meanwhile, inventory depletion has progressed well as end-users bought material from the distributors ahead of the mill rises. The slow improvement in demand that started earlier in the year is expected to continue. Taiwanese steelmakers report brisk business in the flat products sector. It is envisaged that CSC will lift domestic prices for July/August when it tables its next list because input expenditure continues to climb.

We have monitored further, large advances in Polish transaction figures over the last four weeks. However, there is a fair amount of resistance building to the latest round of increases as customers complain they are not supported by a corresponding upturn in consumption. Buyers are limiting the size of their purchases because they expect some level of correction to be imminent.

Similarly, in the Czech Republic and Slovakia, stocks are being kept to a minimum. Although the producers have made more price rise announcements for the third trimester, market participants feel that this will be too much, given the current economic climate. Reductions are envisaged in the summer as most end-users have enough material to cover their needs until then. Activity at the distribution level is slow and resale values are lagging well behind the mill hikes.

In Western Europe, producers are talking up period three prices but firm negotiations are only just starting. Customers believe that some of the numbers being proposed are far too high relative to current demand conditions, in which case, they would not be sustainable. Many buyers purchased sufficient material during the second quarter, ahead of anticipated further hikes. They can now afford to adopt a "wait and see" approach.

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

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