STEEL PRICES EXPECTED TO PEAK BEFORE THE YEAR END
World steel prices are currently at all time
highs. Since August 2007, hot rolled coil average transaction values
in North America have risen by almost $US600 per tonne. EU prices
have moved up by approximately $US530 per tonne and Asian figures
have advanced by more than $US350 per tonne.
MEPS estimates that the upturn in raw material
prices for 2008 has been in the region of $US350 per tonne. Using
this figure, western flat products producers have recovered more
than their increased costs. Reduced imports from Asia, coupled with
restricted output by some steel manufacturers, have created shortages
in the market. Consequently, local mills were able to push through
considerable price improvements. This was despite weakening demand
in the industrialised nations.
Long products values also recorded substantial
advances in all regions. Escalating scrap costs helped to propel
prices higher. Strong demand from the Middle East redirected significant
volumes away from western markets as selling figures rocketed in
many of the Gulf states. European and Asian companies looked to
export to this growing market in order to boost order books. Consequently,
local supplies were restricted. This aided the mills' efforts for
price advances. US values, however, suffered from declining consumption
in the residential building sector.
Transaction figures are expected to continue
climbing in September due to higher raw material costs. However,
we predict that the latest increases will signal the peak of the
current cycle in western countries as reduced consumption negatively
affects demand on the mills. Low construction activity is expected
to result in continued cautious buying by service centres. They
also fear being left with overpriced material when values begin
The weakening economies in the EU and North
America will, almost certainly, result in reduced demand in the
near term from the manufacturing and building industries. Credit
constraints are also expected to limit purchases, particularly from
smaller customers. Consequently, selling figures are forecast to
soften towards the end of the year.
Moreover, the reference prices in the US
used to calculate scrap surcharges are predicted to drop as they
are currently not following market fundamentals. However, these
are liable to be realigned early next year. This adjustment should
result in steel price decreases from October onwards in this region.
Seasonally lower consumption is likely to exacerbate these declines
in the long products categories.
Further reductions are anticipated through
the early part of 2009 as the mills are forecast to lower prices
in an attempt to fill depleted order books. However, a substantial
steel price collapse is not envisaged because exports from east
to west are expected to remain restricted.
Source: MEPS - International
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