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Most prices falling; producers see bottom, others uncertain - 11 November 2011

The prices of most finished steel products, particularly strip, continued to fall last week. Producers were claiming they were at a bottom. In addition, they were talking about more output cuts, but at the same time hoping that others will cut first, that the market would move into balance., and they would thus not have to stop any further blast furnaces.

A balanced market seems unlikely before Q1 2012 at the earliest. Though strip inventories were falling, and lead times were shorter, market sentiment remained poor, resulting in sluggish demand. Low priced imports from producers, which have not cut back, are impacting several markets. Buyers’ attitudes were one of wait and see. The unsettled situation in the euro zone, together with China’s credit restrictions and the failure of the recent G-20 meeting in Cannes to take decisive action have left the global economy in a limbo. ArcelorMittal spoke of a second half 2011 slump at its recent Q3 results meeting.

In this vacuum, several US producers sought to raise prices: both Severstal and NLMK increased their North American sheet prices by $30-50/t from last week’s spot levels of $620-640/st ($684-706/t). However, the market’s belief was that these would not succeed.

In contrast, iron ore prices firmed a little last week: whilst there were few trades, there was an expectation of higher prices. It is probable they fell too far and too fast. The improved sentiment in China also resulted in a small rise in rebar futures, though the domestic and export HRC markets were both softer.

International scrap prices too picked up a little: the Turkish HMS 1/2 80:20 price rose $4/t to $428/t cfr, according to The Steel Index. Moreover the SBB scrap cfr to rebar fob spread declined, but was still relatively high: it has gone from around $255-275/t in August to $215-225/t in November. The relative strength of the Middle East construction market has helped prevent a serious decline in the scrap price.

Flexibility in blast furnace output, rather than price rises, are likely to be the best way forward for producers. However for the first quarter of 2012, the mills may be anticipating a sudden pick up in demand, as in 2011. Thus it is not impossible that Q1 could see a sudden and excessive bout of ordering of strip products, perhaps also resulting in indigestion later in the year.

This market report was taken from the 9 November edition of SBB's World Steel Review.


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