Jul 20 2005
Further price cuts for both flat and long products in European markets were widely expected this month – and values have duly fallen. The Summer holiday season is usually a quiet period in the steel market. Nevertheless, the first indications have appeared that the bottom of the current price cycle may be nearing for long products. For strip products, the situation is much less encouraging.
The economic environment remains generally weak, casting a pall over end-user confidence. The French and German economies are flagging and Italy seems to be heading into recession. The steel stock overhang is proving persistent and is taking longer to dissipate than had been expected.
The cost of scrap is often seen as a leading indicator of steel prices – particularly in long products where it is the major raw material for many producers. A rise in scrap values often heralds an upward move in the price of steel.
July has seen the first increase in scrap charges for several months. Indicators show modest rises of $US5/10 per tonne in some key markets such as the West European export trade. Prime grades in the US Midwest are up by as much as $US20 per tonne. However, the bounce in prices was not universal – Asian scrap markets in particular remain lacklustre – and it is by no means certain that the advance will be sustained. Nevertheless, there are other reasons to think that long product values may not have much further to fall. There have been reports of an increase in prices for globally traded billets – something which is often a precursor of bar and rod price rises.
MEPS’ average EU transaction figure for long products currently stands at €353 per tonne. This is the lowest since January 2004, when the remarkable upsurge that took it close to €500 per tonne was just beginning. Since the peak of the market was reached last October, the average long product price has fallen by €146 per tonne or 30 percent. It now stands only about €50 per tonne above the low point of the previous price cycle. Taking into account cost increases in the 2½ years since then – especially energy – the bottom of the market could be close at hand.
For flat rolled products, the picture is a little different. MEPS’ current average EU transaction price of €484 per tonne is down by €118 per tonne from the peak. This is a drop of only 20 percent. At its current level, the average flat product price remains more than €100 per tonne above its low point in the previous cycle – it bottomed out at €365 per tonne in October 2003. This may indicate that prices for flat products have further to fall before the upward leg of the cycle takes hold.
If slab prices bear the same relationship to flat products as billet prices do to longs, then it may be safe to bet on a further decline: the international slab value has dropped by as much as $US150 per tonne over the last four months. Spot market numbers for iron ore and coal have also reduced. In addition, ocean freight rates for ferrous raw materials are at a two-year low. This may reflect some diminution in demand for imported coal and iron ore but it probably has more to do with an increase in the number of dry bulk vessels available to the market.
Although European mills continue to try to cover this year’s sharp escalations in costs for iron ore, coal and coke, their selling prices for strip products may still be some distance from their floor.
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