- US Steel, AK Steel, Nucor, California Steel, NLMK USA, ArcelorMittal USA, Steel Dynamics, The Techs, USS/Posco and Severstal NA. raised base prices on flat rolled products by a “minimum” of $40 per ton.
- New-home construction in the U.S. surged in September to the highest level in four years jumping 15% to an 827,000 annual rate, a sign the industry is on the road to recovery.
- Chinese HRC, rebar and scrap prices continued to maintain the highs of the rebound off the September low. “There is a growing speculation that steel prices will spiral up towards the opening of the national congress of the Communist Party on 8 November,” one dealer in Shanghai told Platts SBB. China’s Shougang mill announced $8/t hike in its November HRC list prices.
- SDI CEO Mark Millett noted that automotive and manufacturing remain strong while residential construction show signs of improvement during the firm’s recent earnings call.
- U.S. service center’s excess inventory drops m.o.m. According to Steel Market Update’s “apparent excess inventories” formula, U.S. services centers excess inventory is at 341,000 tons, down from 500k in August and 450k in July.
- Scrap prices are gaining upward momentum in the U.S., China and CIS.
- The strike at Kumba’s Sishen mine in South Africa has been brought to an end; mining operations resume.
- China announced a disappointing GDP growth figure of 7.4% in the 3rd quarter, down from 7.6% in 2011 and the weakest since the beginning of 2009. Inflation at 1.9%.
- CISA (China Iron & Steel Association) 80 member mills recorded the worst financial performance for the year in August with combined losses reported to be $670m. Angang Steel Co. expects to lose about $505m through the first 9 months of 2012.
- China mills boost output. China’s daily crude steel output in the first ten days of October rebounded to 1.916m tonnes/day, up from late September’s 1.843m tonnes/day according to CISA
- China HRC export offers up on local prices, but barely any transactions closed at these prices as Korean mills shun high priced Chinese coils. There is considerable downtime and reduced production in Taiwan, Korea and Japan, especially hot rolled coils.
- HRC demand is weak in Turkey, Europe, India, Japan, Taiwan and Japan. Prices move lower for U.S. West Coast scrap amid anemic activity while Korean and Japanese producers have been cutting their domestic scrap buying prices for weeks.
- U.S. Factory activity is slowing. Manufacturing output grew 3.2% in September, its slowest pace since July 2011.
- U.S. HRC lead times down to 2.93 weeks, the lowest of the year according to Steel Market Update.
- SDI CEO Mark Millet predicts scrap price volatility and hesitancy for customers to carry inventory to persist.
- Europe’s steel industry weakens as demand slows. Most mills have capacity to sell for November and December.
- BHP and Vale announce higher than expected iron ore production for 3rd quarter. Rio Tinto, Fortescue and Atlas Iron have all announced iron ore project expansion plans. Chinese port stocks down to 96.4 M tonnes from 97.3 less than 3 weeks ago. BHP Billiton CEO Marius Kloppers predicts the iron ore market will slow to 650million tons this decade, down from 800 as China shifts from an investment focused economy to a consumption based one. HSBC slashes forecast for 2013 iron ore prices to $105/mt.
- “This year’s drought is effecting three continents and has raised calls for suspension of ethanol quotas to head off another global food crisis,” (Steel Market Update, 10/18/12, Sandy Williams)
Will it stick? It depends on what you are referring to….
U.S. Steel controlled the headlines this week when it announced a $40 minimum price increase on flat rolled products pricing. This announcement was quickly confirmed by similar announcements out of AK Steel, Nucor, NLMK USA, ArcelorMittal USA, Steel Dynamics, California Steel, The Techs, USS/Posco and Severstal. The announcement caught many industry participants by surprise as weak global macro-economic demand persists and mill lead times were reported at the lows of the year (2.93 weeks) by Steel Market Update. U.S. factory activity output grew 3.2% in September, its slowest pace since July 2011, however new-home construction in the U.S. surged in September to the highest level in four years jumping 15% to an 827,000 annualized rate. Steel Dynamics CEO Mark Millett noted that automotive and manufacturing remain strong while residential construction is showing signs of improvement during the firm’s recent earnings call. U.S. service center inventory is at its lowest since July and scrap prices are gaining upward momentum. With global monetary stimulus expected to start kicking in over the next few months, it appears U.S. mills are seeing enough of a rebound in manufacturing to warrant the price increases. The big question is whether or not these prices will stick.
In China, hot rolled coil, rebar and scrap prices are holding their highs off of the September lows as Shougang was the latest Chinese mill to announce a price increase ($8/t). Anecdotal reports indicate significant speculative demand for steel products on expectations for additional stimulus once the new Chinese government is in place. Nevertheless, Chinese mills remain wary of end user demand and importers of Chinese HRC are not transacting at higher prices. Sluggish demand in Europe, India, Japan, Taiwan and Korea persist. This has resulted in little activity out of U.S. West Coast scrap exporters as Korean and Japanese producers have been cutting their domestic scrap buying prices for weeks.
China announced a disappointing GDP growth figure of 7.4% in the 3rd quarter and inflation of 1.9%. The China Iron and Steel Association announced their 80 member mills recorded combined losses of $670m in August while Angang Steel, China’s 2nd largest producer in 2011, announced they expect to lose $505m through the first 3 quarters of 2012. In response, Chinese mills logically boosted output to 1.91m tonnes/day, up from late September’s 1.843m tonnes/day, which in retrospect seems to be a “Golden Week” anomaly more than a change in business strategy.
Scrap pricing seems to be mixed with price strength in the U.S., China, Turkey and Ukraine while weakness persists in Asia, ex-China, affecting U.S. West Coast exports as indicated above.
The strike at Kumba’s Sishen mine in South Africa ended abruptly last week and production has restarted. While Mount Gibson Iron announced it will slow mining efforts at its Koolan Island mine in Western Australia, Rio Tinto, Fortescue and Atlas Iron have all announced iron ore expansion plans as the rebound in iron ore prices have held the 100 level for about six weeks now. BHP and Vale announced higher than expected production numbers while Chinese port stocks are still massive at 96.4m tons, only decreasing by 1m tons over the last 3 weeks. BHP Billiton CEO Marius Kloppers predicts the market demand for iron ore will slow to 650m tonnes this decade, down from 800m tonnes as China shifts from an investment focused economy to a consumption based one. HSBC slashes their 2013 iron ore price forecast to $105/mt.
This year’s global drought is affecting three continents and could be an issue that adds to market volatility. In the past, food shortages have led to revolts in relatively poor countries; the Arab spring being the most recent example. So what does this all mean for steel prices? Volatility. There is an elevated amount of uncertainty with plenty of “ammunition” available to make a solid bullish or bearish case. As stated above, the big question in the short-term is the effect the mill price increases have on steel prices. Also, if expectations for further Chinese stimulus drive up raw materials and end product price, whether via speculation, physical purchases or both, and those expectations are not met or not met quickly enough, look out below. In the intermediate term, the effects of overcapacity in iron ore, scrap and finished steel products, the resolution of the European debt crisis, China’s growth and issues in the U.S., including the election, fiscal cliff and economic growth, must be closely watched. In the long term, were all dead.
For the time being, my short-term expectations are for higher physical HRC prices in the U.S. and a collapse of the wide spread between the physical and futures market in HRC. However, over the next twelve months, a continued slide in steel prices led by a repeat of the short-term oversupply cycles in HRC and iron ore production we have seen play out this year, regardless of economic strength. While admittedly biased, interest will grow in the steel derivatives markets as volatility will make the benefits of price risk transfer increasingly apparent.