New data proves steel hasn't been strong for some time

According to the latest from the World Steel Association (WSA), global steel consumption fell last year for the first time in a decade. Apparent consumption of finished steel products in 2008 was 1,198,000,000 metric tons, down by 1.4% from 1,215,000,000 in 2007. Total world production, meanwhile, was placed at 1,326,500,000 metric tons in 2008, down from 1,351,300,000 in 2007.UNCTAD also recently completed a global report on the iron ore market, noting that ore demand will be lower this year and that the current oversupply situation “will not go away soon.” Although recognizing some tightness at mid-year, the report credits Chinese steel production and other importers who, they say, are anticipating iron ore prices rising later this year. As for apparent global steel usage this year, the study cited the WSA’s recent forecast that calls for a 14.9 % decline in 2009. The WSA has not prepared any forecast for 2010.

Lower pig iron imports in ‘09? Scrap Price Bulletin thinks so. Domestic mills either don’t want or need fresh deliveries of the stuff and, they say, there’s plenty of material already warehoused around the country. Pig iron imports through April were lower by 22%; last year, the U.S. imported 4.98 million metric tons.

Higher scrap prices, anyone/everyone? After a fairly steady June, any number of published sources had concluded, and has now confirmed, that the start of the third quarter will feature supply-inspired firmer prices for ferrous scrap. We’re hearing bushelings sold at $318/gross ton delivered, up more than $100/ton, exceeding some earlier reports that were calling for increases of $35-$50/ton for shredded scrap and P&S, along with an $80 bump for prime material. Scrap Price Bulletin was quoting its HMS (heavy melting scrap) composite price at $184.50 at the start of June. Some are looking for a July price closer to $250.

Higher scrap prices and higher f.o.b. spot prices for finished steel. As June ended, Steel Market Update placed hot-rolled sheet (HR )in a $410-$460/net ton range, with an average of $435. Our friends at Purchasing placed their June average at $380.

Other sources show HR currently ranging from $410 - $443. Along with higher prices, raw steel production has also increased in June. AISI placed mill operating capability at 48.7%, the best we’ve seen in a long time but still miles from the 90% rate recorded one year ago. And imports? May steel imports were the lowest dating back to April 1976(!)

And while on the surface, the news from the steel front is more than encouraging, worries persist that fresh demand remains spotty with a lot of steel just filling inventory holes. Nevertheless, modest domestic demand, low service center inventories, along with a near absence of imports, scrap supply tightness exacerbated by low generation and an increase in export activity, should provide enough evidence that the higher price we’re seeing as July gets underway will be achieved by buyers and sellers.

The question remains, however, is there real fundamental momentum to move even higher or will prices just flatten out (or possibly fall) over the third quarter? Again citing Purchasing, their third forecast has HR trending higher, averaging $417/ton. U.S. Steel is looking at $520/ton for September. Stay tuned…

In the nonferrous arena, look at copper. We’re reminded by the Copper Journal that June marked the sixth consecutive increase in the monthly average copper price, as inventories fell to their lowest level since November. Comex spot copper averaged $2.2834 during June, up 17.73¢, from $2.1061 in May. So, the year-to-date average now stands at $1.8563, off $1.8113, or 49.4% from $3.6676 during the first six months of 2008. Inventories held in Comex and LME warehouses fell 42,594 metric tons, or 12% during June to 320,195 tons, and are down 262,388 tons from the March high of 582,583 tons.

Macro events included the release of today’s anticipated jobs report, which recorded a larger-than-expected loss (-467,000), but June’s unemployment rate moderated at 9.5% vs. May’s 9.4%, a bit better-than-expected but it’s still a 26-year high. The manufacturing sector lost another 136,000 jobs - bad, of course, but better than what we saw in April and May.

The ISM Index is a national survey or purchasing managers that looks at new orders, production, employment, deliveries, and inventories with the focus on the manufacturing sector of the economy. A reading above 50 indicates expansion relative to the previous month, while a sub-50 reading indicates contraction. Most figure, however, that readings above 41.2 points to overall economic recovery.

Anyway, the June number exceeded expectations at 44.8, marking 6 consecutive increases, bottoming out in January. At the same time, however, the all-important New Orders component fell to 49.2 after growing in May (a first time in 17 months.) That disappointed…without growth in new orders, there’s less incentive to hire or ramp up production.

And that, boys and girls, is pretty much all we’ve got; we’re outta here! Happy July 4th Weekend!