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Asian steel unfazed by global jitters - 10 August 2011

Fears of a possible global economic slowdown have yet to be felt in east Asia's physical steel markets. While buyers and users of steel are adopting a wait-and-see approach, a collapse seems unlikely because raw material prices such as scrap are still firm and steel demand region-wide has not changed, regional trading sources say.

"This year has been very boring. Steel demand has not been strong because of economic tightening measures implemented by regional governments. The weak dollar has also led mills to raise prices,” a long products trader tells Steel Business Briefing. “Nothing changes except that there is more uncertainty.”

A Hong Kong trader says dollar prices of steel and raw materials will continue to rise because the dollar is likely to weaken further. “China's steel demand is still good so the rest of the region will keep up too,” he adds.

Trading sources tell SBB that steel users have been buying according to need and do not carry high inventories, so purchasing will continue, at least for this quarter.

“The scenario now is different compared to the 2008 financial crisis. At that time, steel producers were enjoying large margins and the market was holding large inventories, chiefly due to speculation. Now, inventories are low and real steel demand is expected to continue,” a Singapore trader says.

Construction steel demand in east Asia normally improves in Q4. “Demand for bar is already soft due to the rainy season, even before the stock market plunge. I can’t see how demand can fall any lower in a significant way,” a Manila-based trader says.

For flat steel, prices are still in the doldrums, and margins are pressured by higher raw materials costs. “Mills are not making large profits (so) I can’t see them allowing hot rolled coil prices to crash down in the next two-three months,” a regional trader says. He described the current steel market as being sentiment-driven since demand and supply factors have not changed.


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