HOW LONG WILL THE STEEL PRICE RECOVERY LAST?
The MEPS world steel price advanced for
the second successive month, in February, as flat product values increased in
North America and Asia.
Global selling figures plummeted to their lowest level for more than a decade,
at the end of last year, as record-high Chinese exports caused a steel supply
glut, which put negative pressure on transaction values worldwide.
The steady decline in steel prices appears to have come to a halt but it is too
early to see this as a turning point. MEPS believes that the increase in selling
figures, albeit from a remarkably low level, is purely supply-driven, as opposed
to indicating any significant uptick in demand.
There is growing evidence that both steel supply and demand in China are
decreasing but the latter will continue to weaken at a faster rate. Therefore,
Chinese suppliers are likely to continue to pitch their exports at low prices
amid a weak consumption outlook domestically.
Consequently, global steel manufacturers and stockists are forced to offer steel
at low margins and, on occasion, below cost, to secure orders. The majority of
steelmakers are making significant losses and the situation is not sustainable
in the long term. It is inevitable that mills will be forced to close or scale
down operations, to reduce capacity to align with real, or profitable, demand.
This is certainly the situation in North America as mills withdraw capacity by
extending outages or idling facilities. The US electric-based mills, in
particular, have the short-term option of scaling back production. However, the
futures of tens of thousands of US steelworkers are likely to be in doubt if the
mill utilisation level does not increase.
As capacity is removed, delivery lead times for flat products are extending as
local buyers restock following the holidays. Imports into the US have slowed
down because of transport issues over the winter months and the successful
introduction of several trade cases. As a result, domestic producers have been
largely successful in advancing flat product selling figures, following list
price announcements, in December and January.
However, MEPS believes that any sustained recovery in global steel prices is
unlikely because of weak demand and continued overcapacity.
The Chinese government has pledged to cut crude steel production by 100-150
million tonnes. However, it is unclear how and how quickly this would have to be
achieved, to have any significant impact on global oversupply. Russian suppliers
are also becoming an increasing threat in global steel markets as they increase
exports because of the weak rouble. Vast quantities of Chinese and Russian
material will continue to enter the world market, which is likely to put further
downward pressure on global transaction prices.
MEPS believes that European steel figures are likely to have reached their
lowest point but the European steel industry will need to restructure itself,
much like the North American mills, if it is to survive the global oversupply
situation. The European Union has been criticised for not reacting quickly
enough to the rapid rise in steel imports from non-EU sources. There is a
feeling that more European firms will go out of business.
As the Chinese economy slows down, no significant upturn in global steel demand
is expected, this year. Consequently, a significant recovery in world steel
prices is unlikely, despite a small rise in transaction values at the start of
Steel Review - February Issue
MEPS - All Carbon Steel Products Composite Price
Free Sample copies
of MEPS Reports
the latest copy of International Steel Review here
up for free MEPS steel news alerts