Steel Price Uncertainty Returns to Developing Markets

Steel industry experiencing a slowdown in demand.

June 9, 2010

Turkish long product steelmakers have lowered their price demands. The retreat was brought about by adverse trading conditions. Current prices levels in the domestic market have not been seen since mid-March. The shortage of price support is fuelling expectations of further weakness. Nearly all buyers are persisting with their cautious procurement strategies. Sales volumes of flat products continue to be subdued. Local distributors and end-users have not accepted the Turkish steel company Erdemir’s May list price rise. Purchasing activity is not expected to improve in the interim.

Difficult trading conditions have persisted in the United Arab Emirates. With prices under pressure, most buyers have postponed booking material and are observing market trends. Recent weakness in imports has placed pressure on local producers and re-rollers to ease their price demands. The domestic steel industry has opted to either suspend sales or operate at reduced utilization rates.

Low activity has prompted procurement managers to indicate that there is no urgent need to replenish their inventories. The sourcing of ferrous scrap and semi-finished steel products has been deferred. This month the prices for these inputs have undergone a severe price correction.

Integrated Indian steel producers adopted different pricing positions in May. Flat products quotes stabilized in June, while long product offers have fallen in some regions by Rs1,500/2,000 (US$32-43) per metric ton. Re-rollers have passed on the benefits of the decline in input costs, particularly the reductions in semi-finished steel products. Discounting and rebates have been used to encourage buying activity. Pressure is growing within the country for a review on the taxes and quotas currently being levied on exports of iron ore. The Associated Chambers of Commerce and Industry of India has made a strong recommendation of imposing a 20 percent duty on exports of iron ore fines, as against current rate of 5 percent. The export duty on ores stands at 15 percent.

South Africa’s main steelmakers have ended their unofficial pricing consensus in a number of carbon steel product segments. ArcelorMittal South Africa (AMSA) and Highveld have employed different pricing strategies for June deliveries. AMSA has informed its customers that it is increasing a surcharge by 113 rand (US$14.60). The hike will bring the new surcharge to R713 (US$92), and will apply to all orders confirmed for delivery from the start of June 2010. There also are concerns about June production. Delivery of raw materials to domestic steelmakers has been hit by the ongoing strikes at the ports and at rail operator Transnet Ltd.

Brazilian steel consumers expect domestic quotes to stabilize. Until now, local mills have adopted different price strategies. A few market participants are sourcing imported flat products to hedge against any potential rise in domestic supply. Construction steel material has been less volatile. Gerdau has informed customers that it may raise its domestic long product prices soon. The steelmaker had been resisting adjusting its offers and absorbed additional production costs.

Renewed optimism is spreading through the Mexican steel industry. Although the recovery process is expected to be gradual, domestic consumption is more than likely to be driven by the automotive and construction sectors. Renewed confidence has led to local steelmakers announcing new investment projects. Nevertheless, mills have continued to lobby the Mexican government for measures to support their competitiveness. Last month there were concerns surrounding the removal of existing tariffs on imported steel.

In Russia, demand for construction steel has risen on the back of favorable weather conditions. Bookings have been particularly strong in the Central Federal District. There is evidence of continuing demand for hot-rolled material. Nonetheless, domestic consumers are concerned that local prices have remained high, while export prices have followed international trends and have fallen back dramatically.

Ukraine’s steel industry has yet to witness any sustainable recovery in local requirements. The long products segments continue to be hindered by a lack of investment in construction projects and weak buyer sentiment. Demand has been restricted to the larger municipalities. Shortages of certain products have not been helpful. The tightness was the result of lower production capacities. OJSC ArcelorMittal Kriyviy Rih is expected to review its domestic quotations at the end of May. Exporters have been forced to mark down their price demands owing to the price weakness in their overseas markets.