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As global economy stagnates, steel prices may be near floor - 15 June 2012

Global economic output has been steady in recent weeks, with the slow rates of expansion in manufacturing being offset by increases in services. While growth continued in China, USA, India and Russia, though more slowly than recently, Japan and Brazil were stagnating. Eurozone uncertainties continued to plague the region and most other economies; German industrial production fell by 2.2% m-o-m in April.

Economic doubts plus the falling worldwide steel intensity of output (in tonne/GDP) have curbed orders, with some prices being whittled down towards cost levels or below. Last week’s unexpected decision by ArcelorMittal to raise spot prices by €20/t to €540/t ex-works for European HRC should be seen at least partly in this context, notes Roger Manser of Kestrelman, a consultancy. Increasing finished steel imports will threaten the price increase if the euro strengthens following any serious move to resolve the region’s debt position, he adds.

Indeed Chinese finished exports rose in May taking the January-May total to 22m t, a year-on-year increase of 10%; May shipments were ordered in March, prior to today’s lacklustre situation. It now seems the country’s economy is set for semi-soft landing, despite last month’s anaemic growth. Boron-added HRC export prices have not fallen further from last week’s $605-615/t fob, and domestic rebar prices for mid-June remain unchanged.

Moreover, the 2.7% fall in iron ore prices to $131.4/dmt cfr China would seem to reflect this offshore market aligning with domestic steel prices. Looking ahead, some claim the recent interest rate cuts in China and Vietnam, together with Beijing’s mini-stimulus, may support a small rebound.

Scrap prices too continued to slide last week, in some cases touching levels not seen since November 2010. Domestic US shredded fell by 11.5% to $383/l.t ($377/t) del mill, while the Turkish average import price for 80:20 HMS 1/2 fell 5.6% to $391/t cfr. These decreases highlight the softer Europe and North American markets.

Total April export figures for both the US and Germany showed m-o-m declines, reflective of demand in China and sentiment in the European Union. Steel prices in these regions depend essentially on the extent of further crude output cuts. In Europe, some doubt if the ArcelorMittal coil price increases will hold given the weakness in the local auto sector. Rebar prices too were mostly under pressure from falling scrap, though in Germany they were holding at €520-530/t del.

US Midwest hot sheet prices tumbled to around $600/s.t. ($661/t) reflecting inventory run-down. However restocking is likely to have to be at high levels, but may not take place in the immediate future. For rebar, mills are expected to partially offset the fall in the scrap surcharge with higher base prices.

This market report was taken from the 13 June edition of Platts SBB's World Steel Review.


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