Steel price movement and its momentum in 2011

Posted on 08 September 2010
 

Source: SEAISI
Prices for most steel products have been following a fluctuating trend after the sharp drop in the first quarter of 2010. However, many sources reported that steel prices seem to be stabilizing in August. In Asia, steel prices are reported to be steady as well, while prices of some steel products in China have begun rising. World Steel Association reported that shredded scrap price from USA is on an upward trend and picked up significantly from 329 USD per tonne in late July to 358 USD per tonne in the first week of August. Billet and slab remained stable at average prices (FOB) of 540 USD per tonne and 523 USD per tonne, respectively. It is expected that China’s steel producers are looking to push their prices higher in the coming months. Moreover, the recent rise in iron ore prices as well as the firming up of scrap prices could add to the pressure on finished steel product pricing in the near future.

In Malaysia, some of the country’s steel manufacturers are cutting production up to 50% of their capacity while others are offering discounts to push sales. However, it is expected that after the Ramadan fasting month in August, demand will return to the market and production may increase to match demand level. Indonesia’s steel producers are also struggling with the upward trend of scrap and semi-finished steel product pricing. Nevertheless, demand has remained weak and there is no reaction from the market when producers tried to increase prices.

In general, current steel demand seems to be lackluster, but is expected to improve at the end of the third quarter, after the summer slowdown and the rainy season in Asia. In the meantime, scrap and semi-finished product prices have begun to move upward. Chinese domestic demand has apparently increased after falling significantly in the second quarter. It is expected that the seasonal effects should raise demand later in the fourth quarter of 2010. Demand in the rest of the Asian region is expected to be firm. The key question is whether steel producers will reduce production to hold steel prices. According to World Steel Association, crude steel production declined in the months of June and July. Therefore, many reports remarked that steel price level should increase again in the fourth quarter.

What is going to be the situation for steel pricing in 2011? Apparently, steel demand in many regions will slow down. Chinese steel demand in 2010 is expected to rise by 10%, but will increase by only 5% in 2011. This will cause a moderate decline of export from China.  Non-Chinese steel demand (in the advanced countries) is expected to surge by 12% in 2010 and could be up by only 3% in 2011. In non-Chinese developing countries, steel demand may rise 15% in 2010 and 8% in 2011.

Steel buyers are unlikely to keep so much inventory in 2011 since prices are volatile, unless they perceive a risk of sizable price increases, which does not seem likely. The buyers are likely to have a wait-and-see behavior until the last minute before they make a decision to buy.

World Steel Dynamics forecasts steel prices for 2011 in four different scenarios, starting from the best (1st) case when global economic and steel industry profit boom, to the second case when good global economic expansion occurs; steel demand rises by 6%; the mills’ profit rise sharply. The third case which has more possibility is the same economic assumption as in the second case and steel demand rises by 6% but there is a persistent oversupply problem. The worst scenario (4th case) assumes that global economy continues to be mired in recession and stagnation with many steel mills losing money. As a result, World Steel Dynamic expects steel prices to range between $475 (FOB) and $850-900 (FOB).


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