Steel price rise: Not too much to expect
new.financialexpress.com
The recent reports that steel prices are increasing in the world market and that this could be the beginning of a long overdue recovery in the steel market seem excessively optimistic and to a large extent misplaced. Most such reports are based on the developments in the US market mainly in flat products.
Reports also say that the prices of HR coils for second quarter 2002 deliveries are up 10-15 per cent. There seems to be more speculation than reality in these reports. The CRU steel price index stood at only 68.9 (April 1994=100) in December. It could not have gone down further. Any increase from this levels if has taken place at all, must be based on solid grounds. However, the ground reality, however, is somewhat different. It is usual in the global market for steel prices to rise in the first and the second quarters of the calendar year. The steel makers in the US have made some attempts to raise prices of the flat products, particularly of HR coils. The real transaction price in the US market for HR coils seem to have risen from about $205 per short ton to about $225-230.
There has been some increases on CR sheets as well. Much of it is the ritual of the season. But, the balance in the market seems to have tilted a little to support a small rise in price, at least till the time increased imports wipe that out.
Conditions have changed in the US market. Demand for steel has fallen sharply. Although there is no clear estimate of that, according to the World Steel Dynamics, consumption of flat steel has fallen by as much as 26 per cent between the second quarter 2000 and the fourth quarter 2001. This is against a global figure of 10 per cent. In the first three quarters, according to CRU, consumption of HR coils has fallen nearly 16 per cent, year on year. The market remained in the state it is today and did not collapse totally because imports as well as domestic production fell also sharply. But, the reports from the US also show that inventories of steel, particularly of flat products, have increased at the turn of last year. There has not been any visible sign of the recession ending. Therefore, it was difficult also to believe that there has been an out of the trend increase in demand for steel in the country. Therefore, the rise in the prices of HR coils in the US should not be taken as indication of better days to come for steel.
The real reason may be based on pure speculation of the US Administration coming down heavily on imports of steel using safeguard measures as proposed by the International Trade Commission. The Bush Administration has to take its decision in February. If strong safeguard actions are taken and as a result the steel prices gain in the US market, there is little for the rest of the world to rejoice. The conditions elsewhere may turn worse. The steel that floats in the international market will find one source gone only to be available at lower prices in the other less attractive markets.
Last year, the global crude steel production dropped 0.9 per cent to about 840 million tonnes. The estimated global consumption (in crude steel equivalent) was in the range of 810-820 million tonnes. This means the first quarter carried substantial inventories, not only from 2001 but also from the previous year when the consumption of steel was reported to be much lower than production. That is even if it is assumed that the entire inventory carried from 2000 has been liquidated by now, the fresh inventories accumulated last year was in the range of 20-30 million tonnes in crude steel equivalent.
This year’s consumption has been forecast at about 790-795 million tonnes. Therefore, if the market has to come to some balance, the production this year will have to be about 760-770 million tonnes - a drop of 70-80 million tonnes from last year! This looks impossible. Therefore, the pressure on prices will continue in the international market.
At the same time, the US dollar is gaining strength back. Most of the countries with significant potential to export steel like Japan, Russia, India, European Union, etc, have seen their currencies weakening remarkably. This makes it easy to accept lower dollar-denominated prices. The actual transaction prices of HR coils have slumped to about $175-180 per tonne from the first class mills. The CIS mills can sell even at prices around $145 per tonne, fob. There are no signs of buyers queuing up for steel. There are no arrogant sellers refusing to sell at these prices.
There has not been any upturn to talk about anywhere else, even from the pit the steel prices were in December. |
