EU STEEL MARKET PRICES CONTINUE TO WEAKEN AHEAD OF THE HOLIDAYS – MEPS INTERNATIONAL LTD

Activity in the European flat products market is quiet ahead of the summer holidays, according to MEPS research. Although consumption is strengthening in several countries and economic indicators are good, producers, keen to book orders, have agreed to further small price reductions. Customers have called for lower basis values, citing the mills’ relatively low raw material costs and the availability of cheaper third country imports.European Steel Review

As the domestic auto sector is busy, German steelmakers have strong order books from those companies. However, other industrial sectors are only performing at a level comparable to last year. Distributors are reducing resale values in order to compete for business. Buyers are of the opinion that further minor weakness could develop over the next six to eight weeks.

Activity remains weak in the French market, where end-users have short order books and are worried about the situation in September. They are, therefore, unwilling to order material now. There will only be a slight increase in orders for September delivery because underlying consumption is poor. As a result, basis values have eroded further, despite mills’ efforts to stabilise them

Market sentiment in the Italian steel sector is very negative. After the Italian mills decided to drop basis values to encourage orders, buyers report that their quotations are now being met by some North European producers. End-users are worried about their stock levels as all hopes of demand improvement, forecast earlier in the year, have been dashed.

UK service centres report they have a wide range of busy customers. Distributors’ sales volumes are well up on 2013 and, for some, the best in several years. Nevertheless, mill prices remain low. Indeed, they have continued to drift downwards, due to the strength of sterling, which is serving to attract material from mainland Europe and further afield.

There have been no major changes in the Belgian market, where demand is flat. Distributors report that end-users are endlessly shopping around to get bigger discounts. Stockholders from neighbouring countries are also competing for business. Delivery lead times from the steelmakers are extremely short.

There are signals that the Spanish economy is slowly reviving. New projects are coming on stream and some of those that were postponed during the financial crisis are being reactivated. It could be well into the final quarter before this improvement makes itself felt in the domestic steel industry, which, currently, is quite dull. Suppliers are, therefore, looking continually to export markets.

Source – MEPS European Steel Review – July Edition

SWEEPING CHANGES NEEDED TO CHINESE STEEL SECTOR – MEPS

China’s steel industry is in need of radical reform. It has become bloated. Similar occurrences developed in North America, Europe and Japan in the latter part of the last century. In all cases, to solve the problem it was necessary to embark on China Steel Reviewpermanent factory closures to bring supply and demand nearer into balance. Such a solution was extremely painful for the workforces.

Governments needed to be involved to oil the wheels and provide the necessary funds for generous payouts to staff that lose their jobs. New investment, in the regions affected, was also necessary to stimulate modern industries and create employment. Encouraging mergers and acquisitions as the vehicle for efficient rationalisation also assisted in creating an efficient sector. The plan will work only if all three policies are initiated together.

Creating jobs in new and growing sectors of the Chinese economy would be much more sensible than preserving them in the large number of inefficient steel mills. The government would be required to provide the funds for payments to the workers affected and to provide capital for new ventures.

Can the authorities afford to sit back and wait for a solution to appear? Further investment in infrastructure projects is being planned and will help. However, continued rapid spending on capital projects is not the long term solution.

China’s economic growth is expected to fall to figures between 7 and 7.5 percent, this year and next, according to the latest estimates from both the IMF and OECD. These numbers may appear substantial by standards of developed nations. However, for China, they are very poor compared with results since the beginning of the 1990’s.

The steel sector is under negative pressure now that the real estate market is in decline. Steel prices are weak and mill profitability almost non-existent. The steelmakers are required to invest in air and water anti-pollution measures.

Overcapacity exists and the mills are oversupplying the domestic market. The steelmakers are increasing export sales in an effort to minimise the problem. The current situation in the Chinese steel sector is a mirror image of those that existed in the other major economies in the 1980’s and 1990’s but the numbers are much bigger. However, the dilemma is not confined to the mills alone. Action needs to be taken to modernise the archaic and inefficient steel distribution mechanism.

Source: MEPS China Steel Review

THE MEPS GLOBAL STEEL PRICE SLIPS AS IRON ORE COSTS SLIDE

US flat product transaction values are steady at the level reported in May. Domestic capacity utilisation is spiking after the recent outages, although some scheduled maintenance is due soon at US Steel and ArcelorMittal. Underlying consumption is growing. Service centres are keeping stocks lean. There is no speculative purchasing. Consequently, any significant upturn in demand could cause positive price pressure.International Steel Review

A combination of the unfavourable exchange rate and sluggish demand is keeping Canadian transaction values in check but the softening that many buyers expected has not yet occurred. Supply and demand are largely in balance. Some imported steel has started to arrive, with more scheduled for July. However, a great deal is for contractual business, not for general resale, so inventories at the service centres remain low and prices reasonably firm.

So far, recent good economic news, in the form of a stronger PMI, has not generated any greater market activity in China. Domestic prices continued to head downwards, following the June 2 Dragon Boat Festival. They are being driven by excessive production capacity and falling raw material costs. Output hit a record high in May. Steel demand is, traditionally, weaker over the summer months as construction activity slows.

The move by Japan’s government to raise the consumption tax has negatively affected buying interest. Steel demand in April plummeted by 12 percent, month-on-month, and inventories grew. South Korean demand remains at a low ebb, although, according to local statistics, the main steel consuming sectors of auto, shipbuilding and construction performed better than expected, in the first quarter. However, recent economic forecasts predict that, in the second half of 2014, growth may be slower than previously envisaged.

Taiwan’s major producer, CSC, will cut official domestic list prices for the July/August period by an average of 1.64 percent, compared with June. This will be the first time since February that the company has reduced selling values. Falling raw material costs and sluggish regional demand were the reasons cited for the move.

In Poland, steelmakers want to lift prices in July by around €5 per tonne. Buyers are sceptical because activity is no better and is unlikely to improve before the summer vacation. Demand usually falls ahead of the holiday season. The Czech economy is slowly recovering, as is consumer confidence.

Activity in the West European flat products sector is unseasonably quiet. Although underlying demand is gradually improving in several countries, it remains a buyers’ market. Mills have reported heavier order intake lately, as consumption strengthens but supply is still in surplus and delivery lead times quite short.

Source: MEPS International Steel Review

PRICE VOLATILITY UNSETTLES BUYING SENTIMENT IN SEVERAL EMERGING STEEL MARKETS

MEPS BRIC average flat product carbon steel transaction prices, measured in US dollars, increased in June – despite reductions recorded in Brazil and China. Average figures for the long products declined – irrespective of recoveries in Russia and India.

Purchasing activity has begun to exhibit signs of stagnation in Ukraine. Shipments to industrial companies in June were weaker than predicted, particularly to tube and pipe fabricators.Developing Markets Steel Review

Procurement activity in Turkey remains erratic. Stockists are booking for only immediate requirements due to price fluctuations and the close proximity of Ramadan. The downward price trend of key steelmaking ingredients has only aggravated the situation. Support from external demand is limited.

Procurement activity in the United Arab Emirates was less vigorous than in May. Underlying demand for finished steel products has fallen short of industry projections – particularly, from construction firms and pipe fabricators. Local steel producers continue to face stiff price competition from Chinese, Indian and CIS suppliers.

South African service centres are growing more pessimistic about the prospects for domestic steel consumption in the remainder of 2014. Service centres have started to downgrade inventory levels to minimise potential losses from labour strike action. Deliveries to downstream industries have continued to underperform.

The outlook for the Mexican steel market is unchanged. Domestic mills plan to persevere with their “US dollar indexed” pricing strategies. Meanwhile, the National Chamber of Iron and Steel Industry (Canacero) has forecast that finished steel production in 2014 will total 19 million tonnes – a year-on-year increase of 4.3 percent.

Source: MEPS – Developing Markets Steel Review