Steel Prices Climb Despite Subdued Demand

Meps reports that despite strong prices increases, weak demand still plagues many parts of the world.

April 29, 2010

Despite relatively weak demand, U.S. flat product transaction values continue to climb rapidly as producers press for more and more increases to cover their growing input expenditure. Delivery lead times are steadily extending and some buyers are complaining of late shipments. The mills claim their order books are full for May. Distributors are being cautious about rebuilding inventories since many of their customers are reporting low activity levels. There are few attractive import offers - quotations are roughly in line with domestic prices at present and quantities are quite limited.

Canadian mills report strong activity with full operating schedules for May at the facilities open at present. June is expected to be similar. Customers see demand as somewhat weak and, consequently, are now only ordering what they absolutely need, having replenished inventories in the first quarter before price rises. However, auto production is moving well ahead of last year and construction is starting to gear up a little due to the mild spring weather. Offshore imports are not a threat at present. Local producers have continued to boost transaction figures over the last four weeks and it is expected that pricing will move higher for June deliveries, reflecting an escalation in raw material expenditure.

Chinese steelmakers are accelerating their upward price adjustments in order to pass on their soaring input costs to downstream consumers. So, despite huge stocks in the market place, our figures are substantially above those monitored in March. Sentiment remains positive. Quotations for export business are also increasing.

Although Japanese domestic sales have recovered to some degree, the general market remains depressed. Nevertheless, prices continue to firm as steelmakers try to compensate for their considerable outlay on raw materials. Tokyo Steel is looking to implement further substantial price hikes in May. Inventories are now better balanced and activity should soon pick up for seasonal reasons. Demand from overseas clients remains strong. Quayside stocks of imported flat products, as end March, fell by 6 percent from the previous month - to hit the lowest point since records began - as foreign suppliers concentrate on other countries in the region, where demand is much higher.

Inventory depletion is progressing in South Korea as end-users bought material from the distributors ahead of anticipated mill price rises. It is envisaged that Posco and other local producers will adjust domestic selling values sharply upwards, very shortly, as the costs of raw materials are ramped up.

The Taiwanese steel markets are reviving satisfactorily, with local mills reporting brisk order intake ahead of announced and expected increases. Further hikes are likely to be in store for May and CSC intends to lift prices by an average of 10 percent in June.

Although Polish sales are muted, we can detect some upward price momentum with further, extensive improvement expected during May/June. However, many question whether the situation can be maintained for any length of time, given the present, woeful state of demand.

Producers continue to push up basis figures in the Czech and Slovak markets but very little business has been finalized at the new levels. The small amount of restocking that started to take place at the service centers, ahead of the price escalation, now appears to have ceased. Resale values are lagging a long way behind mill increases. Demand remains depressed in most end-user sectors. Manufacturers are increasingly complaining about competition from finished goods of Chinese origin. Import offers of steel from Russia and Asia are at least as expensive as local quotations.

Despite relatively low activity levels and poor final demand, prices are ascending rapidly in Western Europe. This trend is likely to continue into the third quarter as period two is virtually sold out at most mills. Producers are justifying the increases on the grounds of their rocketing raw material costs. However, the hikes are not supported by any substantial improvement in end-user consumption and there are fears that the higher prices could damage the small recovery that has begun.