THE MEPS GLOBAL STEEL PRICE TURNS
DOWN IN JULY
The recent steel price recovery is now under threat. The
MEPS world all products composite steel price declined, in July, by 0.9 percent
- the first monthly fall this year.
While mill price hikes in North America were arguably the initial driver of the
global price revival at the beginning of the year, the region’s weakness is now
likely to be the precursor for world price falls in the second half of 2016.
Amid a subdued demand outlook, North American selling prices have been
artificially raised by supply-side measures. Relatively low domestic capacity
utilisation rates, of below 80 percent, and the introduction of trade barriers
propped up domestic transaction values.
One US buyer labelled the recent price hikes as ‘supply-side fiction’, arguing
that it was in the interest of only local producers to maintain steel selling
figures at elevated levels and that domestic mills, with the assistance of trade
petitions, were taking these actions at the expense of consumer choice.
MEPS has long predicted that further supply-side price hikes, in the US, could
prove fragile. Regional selling values fell marginally, this month, as order
volumes slowed ahead of the summer vacation.
From MEPS research, in July, the consensus view from US steel industry
participants is that steel prices are likely to stabilise at best, in the near
term. Seasonally slower demand and cautious service centre buying in the fourth
trimester, due to stock and cash flow considerations, are likely to put further
negative pressure on domestic selling values.
Another buyer noted that he expects US steel manufacturers to “play defense” by
announcing a further list price increase, in September. It is likely that steel
buyers would resist the initiative, at this stage. However, at worst, local
producers would hope to prevent any price reductions, especially as US import
volumes continue to be curbed by ongoing trade cases.
In addition, MEPS European selling values fell significantly, in US dollar
terms, this month. Order intake slowed considerably, ahead of the approaching
summer holiday period. Competitively-priced offers from Russia and China, in
particular, also had a negative impact on regional selling figures.
China, which is responsible for over half of global crude steel production, will
always have a major bearing on the trajectory of global steel prices. This
month, the MEPS Asian average price rallied following growing talk of production
cuts, especially in the Chinese region of Tangshan. However, at the time of
publication, Asian regional prices were softening slightly, because of increased
volatility in both the billet and futures markets, in China.
It is likely that global steel prices will continue to be on a downward trend
for the second half of 2016. However, we believe that steel selling figures will
remain significantly above the low levels recorded at the end of last year.
Steel Review - July 2016 Issue
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