THE MEPS GLOBAL STEEL PRICE FALLS 5.1 PERCENT IN JUNE

After climbing steadily for months, US flat product transaction values have started to decline as the market slows for seasonal reasons. Although domestic steelmakers' production and capacity utilisation have continued to grow in recent weeks, sluggish demand has already caused Severstal N.A. and ArcelorMittal to announce outages in order to correct oversupply. Further output reductions could occur in order to protect prices as the year progresses. Even though there is virtually no foreign competition, transaction figures are likely to soften further in the short-term.

In Canada, the overall economy remains fragile. The steel market is unsettled from a pricing perspective. Some discounting is evident. Buyers are now adopting a 'wait and see' attitude before placing orders for any large volumes, thinking that transaction numbers could fall further quite soon. The producers believe that, in the longer-term, the extra costs of iron ore and coal will necessitate some more advances. Customers' inventories are sufficient to support current mediocre demand.

China will cancel the 9 percent export tax rebate on a number of steel products from July 15. This will adversely affect exporters. The move, which was widely anticipated, is aimed at tackling overcapacity in energy-intensive industries by forcing companies to focus on domestic consumption rather than overseas sales. Meanwhile, local steel demand is relatively dull and prices continue to fall, despite escalating input costs.

Japanese steel output rose in May, supported by firm exports and good domestic sales to auto, appliance and machinery manufacturers. Moreover, quayside stocks of imported flat products, as end May, declined by 5.5 percent from the previous month. Local transaction values are firm at present. However, Tokyo Steel will cut July contract list prices, to reflect sharply reducing scrap expenditure and much lower regional selling values.

In South Korea, demand from both domestic and overseas markets has begun to soften. Nevertheless, Posco recently announced a series of price hikes for the July/ September period. The company claims the move is necessary in order to recoup growing input costs but that it has absorbed some of these to keep the increases to a minimum. There is significant competition from cheap imports, particularly of Chinese origin. Confident that steel consumption will rebound sharply in the third quarter, Taiwan's CSC has restarted its No.1 blast furnace, which was shut down during the 2009 economic downturn. The company also intends to lift local list prices by an average of 7 percent for the July/August period in anticipation of higher coal and iron ore expenses.

The proposed period three price rise for strip mill products has been implemented in Poland. However, market activity is at a low level and very little business is being concluded. There is a fair amount of resistance building as customers complain that the advances are not supported by a corresponding upturn in consumption. The situation in the Czech Republic and Slovakia is similar. Transaction values are still expanding but few buyers are willing to pay the new figures. For the moment, the mills are very strict in their application of increases. However, customers believe that as the steelmakers have very poor August order books, some discounting could occur quite soon. Demand from end-users has not improved since the start of the year. Distributors are pessimistic about the future tendency for resale values, which are already too low.

In Western Europe, market sentiment has been knocked by recent economic turmoil and sovereign debt issues in the Eurozone. Domestic producers are still keen to lift basis values significantly for the third quarter. However, most steel consumers and distributors are comfortable with their current inventory levels and are purchasing prudently. Consequently, the market is very quiet and the number of mill bookings is extremely low. The steelmakers may eventually be forced to go below their target selling figures to generate business, at least for commodity grades.

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

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