ASIAN STEEL MARKETS COOLING DOWN

Import prices into many Asian markets are on the wane, and there is a distinct feeling that the heat is going out of the steel market. Period three may be the last time for mills in Asia, Europe and North America to secure further price increases.

Since we reported on the dip in Chinese domestic steel prices last month, further evidence has been emerging of the extent of the slowdown in the country’s growth rate. Having been rising at 20 percent for many months, the country’s steel production in May rose by only 14.1 percent, its lowest year-on-year percentage increase since December 2002. Imports of iron ore and other raw materials into China registered a volume decrease in May. But the decline in iron ore imports was a mere 4.5 percent, and is probably related as much to the congestion of the country’s ports and railways as to slackening demand.

Maybe more significant is the recent sale of heavy melting grade scrap into Korea at below $US200 per tonne c&f. Only a few months ago, this product was selling for more than $US300 per tonne, and these lower prices seem to be drawing Chinese buyers back into the market.

Part of the fall in c&f values of internationally traded material is attributable to the continued decline in ocean freight rates. In the last couple of weeks, these have fallen to their lowest levels in nine months, and are down by about 50 percent from their January peak.

China’s imports of steel products in May fell very sharply – by over 30 percent to 2.13 million tonnes, according to official figures. And there have been increasing reports of local traders seeking to re-export flat rolled and other steel products for which there is no home market - particularly at the values quoted.

Chinese domestic prices have weakened again this month, but most other markets in the Asian region remain fairly strong. The severe supply shortages experienced earlier this year have left many unfilled gaps in the supply chain. This is enabling the major mills to keep their prices steady, or even increase them further.

Still, the longer-term fundamentals for steel demand in China remain bullish. Construction has been the leading driver of steel consumption up to now, but manufacturing is quickly catching up. International auto manufacturers such as VW, GM and Toyota have got plans for major investment in production capacities in China. From only around 5 percent of Chinese steel consumption at present, auto manufacture looks like becoming one of the fastest growing sectors in the next few years.

Source: MEPS - International Steel Review