Steel price movement: what is its implication?

Posted on 30 March 2009
 

Source: SEAISI
Steel prices continue to decline without any sign of picking up since the middle of 2008. Global demand continues to be sluggish. It seems like production cutbacks by many steel makers do not have a significant impact on the price movement yet, and further cutbacks may be required. The situation is still unclear. Reduction on raw material prices may improve producers’ profitability to some extent. However, it may also lead buyers to believe that prices will continue to fall further.

Raw material prices, particularly for scrap and spot iron ore, remained in downward trend through the first quarter of 2009. According to Australian miner, Territory Resources Ltd, benchmark contract iron ore prices are set to fall 30-35% from levels set last year, a reflection of lower demand amid the global recession. World Steel Association reported that scrap price picked up from 125 USD per tonne in November 2008 to 268 USD in February 2009 and dropped dramatically in March 2009 to 230 USD per tonne. Meanwhile, semi-finished steel prices continued to decline from 628 USD per tonne for billet in November 2008 to 350 USD per tonne in March 2009, and from 908 USD per tonne in November 2008 to 345 USD per tonne in March 2009 for slab.

Scrap-based EAF producers are using up supply inventory and are still able to enjoy profit from the gap between scrap price and finished steel prices. However, re-rolling mills may have a hard time since the price gap situation does not apply in the case of finished steel and semi-finished steel.

Concrete reinforcing bar price declined steeply from the peak of 1,115 USD per tonne in August 2008 to 450 USD per tonne in March 2009. In December 2008, billet price was higher by about 200 USD per tonne, when compared to price of concrete reinforcing bar and wire rod. Similarly, slab price was higher than hot rolled wide coil by 113 USD per tonne in early November 2008 and by 200 USD per tonne in December of the same year.

If there is no improvement in demand, there is a high chance that steel prices will not recover this year. Demand for raw materials from steel mills remained low throughout the first quarter of 2009. Long products demand in global market remained low and the drop in prices only stabilized in February and early March 2009. Flat products markets appear to be weaker since their main customers, such as automotive sector, are suffering from the economic meltdown as well. According to SBB, latest demand forecasts have to be revised continuously in anticipation of further impacts from economic slowdown, except for China and South East Asia.

Nevertheless, steel makers in South East Asian countries may have to contend with the increasing flow of steel products from other regions. Economic recession has hit steel demand in Europe and the United States. In addition, the American slogan of “Buy America” raises more worries for steel makers in other regions. China, the world’s top steel producer and consumer, is also protecting its domestic market and encouraging exports to help local steel producers. Despite the earlier production cutbacks announced by many steelmakers in China, the China Iron and Steel Association came out to warn that steelmakers were rushing back to full production after a brief upturn in steel prices in January and early February, which means the market might be flooded by unwanted steel. On the other hand, Russia and Ukraine are trying to export steel products to Asian markets at competitive prices. Recently in March, it was reported that Russia offered slab to Asia at 300 USD per tonne (FOB), compared to the average slab price (FOB) reported by World Steel Association of 345 USD per tonne.

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