Sheet steel prices may slide in the fourth quarter
Demand is weak yet cheaper foreign supply may grow
Tom Stundza -- Purchasing, 10/7/2009 3:20:14 PM
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Domestic mill hot-rolled steel sheet pricing remains in a
range of $535-$555/ton this month from recent f.o.b. ex-mill average highs of
$570/ton and announced mill list prices in the $600/ton vicinity. And the
mavens are beginning to acknowledge chances that seasonal fourth quarter
weakness in demand could push prices somewhat lower.
The early October spot prices compare with Northern European pricing of $550-$560/ton and Chinese pricing of $440-$450/ton. This isn't unusual, says analyst Mark L. Parr at KeyBanc Capital Markets in Cleveland, since U.S. pricing realizations typically sell at a $50-$100 premium to domestic North European and Chinese pricing.
But domestic scrap prices are falling deeper than many had anticipated, imports of low-priced flat-rolled appears to be rising in the face of the weakened dollar and buying momentum is likely to ease further over the next several weeks.
Parr suggests that "rational U.S. supply chain and stable-to-tight global steelmaking raw material supply/demand fundamentals should buffer a sharp downside in spot pricing into the seasonally weaker winter months." He also sees "gradual restoration of steel production in line with underlying demand and increased demand for steel in support of re-stocking the automotive supply chain." The majority of buyers polled recently don't agree-since auto-related buys occupy a minority of their bookings-and continue to source on price whenever they need material for production.
In an Institute of Supply Management Steel Buyers' Group survey in September, 20% of the buyers polled now expect to increase their foreign steel purchases, as compared to zero in August. "The cause is most probably that the tipping point was reached in China last month," says analyst Michelle Applebaum in a Steel Market Intelligence report, "where weaker prices and structural overcapacity pushed August steel exports to the highest level so far this year - as steel production in the month hit an annualized 616 million metric tons, some 23% higher than prior peaks."
Looking forward, even Parr admits that "demand momentum
beyond the fourth quarter remains a bit more perplexing given the lack of
tangible economic stimulus to the public and private portions of the
non-residential construction market, and the lack of evidence of sustainable
housing recovery disturbed by incentives to first-time home buyers and low
interest rates."
That's why his calculations of apparent steel consumption has fallen into a
"new normal" this year of a range of 65-75 million tons, compared with 110.5
million tons in 2008. Annualized from
seven-month data, consumption could be as low as 61 million tons. Looking ahead
to 2010, he sees consumption of 75-85 million tons, assuming 7 million tons of
net imports (15 million tons of imports less 8 million tons of exports)-which translates
into a U.S.
capacity utilization between 60-65% for 2010.
Sheet steel prices still sliding
11/14/2006
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