Various sets of data, released during August, suggest that the US economy is starting a slow recovery. Raw steel output continues to climb steadily with capacity utilisation rates up to 58 percent in mid September. As input costs soar, so transaction prices for strip mill products continue on an upward trend. Delivery lead times are out to late October and producers have announced another round of rises for November shipments. Service centre demand is reasonable with just a minor uptick in sales but it is not clear whether this improvement will last. Real consumption in general is lacklustre, with the only significant increase coming from the auto sector. Foreign steel offers are not disruptive.
In Canada, steelmakers' order books have shown a strong revival during the summer. There is a degree of restocking underway. Moreover, the positive price trend is encouraging buyers to order ahead of further advances. Automotive schedule increases, together with USS Stelco's absence from the market, has helped tighten supply. Domestic delivery lead times in many instances are now into November. Imports from the US are relatively low and offshore competition is lacking. On a more negative note, customers are not seeing any real improvement in consumption. The fear is that current demand, based solely on inventory rebuilding, will not be sustainable.
In China, the upward price tendency noted in July continued into early August. Since then, the market has turned down, amidst oversupply, growing inventories and deteriorating sentiment. Selling figures have fallen steadily over the past few weeks, causing the mills to slash their ex-works prices accordingly. Soft global demand continues to hamper export business but lower domestic values are putting downward pressure on the export quotations offered by the Chinese mills, thus helping them to find more buyers in Europe as well as in South East Asia.
Japanese integrated steelmakers plan to return their operation rates to 80 percent of capacity during the fourth quarter. Stock adjustment for strip mill products is progressing well. Inventories held by local mills and distributors, as end July, fell by 4.2 percent compared to June - the sixth successive monthly decrease. However, levels are still relatively high in relation to actual demand, despite some recent recovery in consumption by manufacturing industry. Quayside tonnages of imported flat products dropped by 9.5 percent, in the same time frame, to reach the lowest level in five years.
The overstocking situation in South Korea is becoming more manageable. Inventories of flat products, at end July, were down by over 8 percent relative to the previous month. The market in Taiwan continues to show signs of recovery. As a result, CSC will delay plans to reline its No. 1 blast furnace. The work has been put back from November this year to January 2010. As expected, the company imposed price hikes for September deliveries which are already reflected in market values. More recently, higher figures have been published for October/November sales.
Despite a lack of any real activity in the Polish market, customers have conceded transaction rises as material becomes more difficult to source. Consumption has not picked up but companies must start to refill their depleted stocks. Similarly, in the Czech Republic and Slovakia, there is an inadequate supply of steel because distributors are replenishing their exhausted inventories. For this reason, prices are expected to go higher in the near term. However, demand from end-users is described as "dreadful" and market players believe the enhanced figures will not be sustained beyond the end of this year. Exporters of manufactured goods are looking anxiously for the first signals of recovery in the German economy.
While restocking has boosted flat product sales recently in Western Europe, underlying consumption remains relatively weak. Although tight supply is helping to strengthen prices in most countries, this upward pressure could quickly dissipate as producers bring idled capacity back on line. Third country import activity remained low throughout the summer but, more recently, Chinese mills have begun to offer material, particularly in Southern Europe.