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Global economy slows further, steel demand and prices hit - 8 June 2012

The world economy was close to stagnation in May, according to the JP Morgan global manufacturing purchasing managers’ index. It fell to 50.6 for the month as orderbooks were lacklustre and international trade declined. National data from around the world, including Korea, Japan, China, Indonesia, Brazil, Europe and the USA also showed slower growth; in contrast both Russia and India had PMIs well above 50.

The slow pace of new orders from manufacturing and construction has left steel industry demand weak, further depressing flat and long product prices, typically by $10-20/t in the last few weeks, notes Roger Manser of Kestrelman, a consultancy. Drastic crude steel output cuts in the coming months - for both seasonal and fundamental reasons – might just stabilize the market, he adds, but sentiment will stay poor until all the euro’s issues are clearly resolved.

Some steel prices are already said to be close to cost levels; however, volatile raw material prices make confirmation difficult. Surprisingly spot 62% iron ore prices picked up 3% last week, apparently on an expectation of firmer Chinese demand, as a result of Beijing’s decision to fast track some industry and infrastructure projects. However, most traders do not expect these rises to last. Indeed Chinese HRC export prices fell further to $610-615/t fob, reflecting weak overseas demand.

Trading activity in Southeast Asia was thin, reflecting both global and local market weakness. Billet import offer prices for July shipment slipped to $640-650/t cfr. Other negative influences include the approaching monsoon season and Ramadan, which starts mid-July.

International scrap prices too declined. Last week’s Turkish average import price for HMS 1/2 80:20 fell $17/t to $413/t cfr, according to The Steel Index. Rebar demand in the eastern Mediterranean (including Turkey) is not strong, though Saudi Arabia and Iraq are still importing.

US rebar prices slid alongside scrap, and hot sheet prices were also down $5/s.t to $635-645/s.t ($700-711/t). The declines reflected the softer domestic markets, highlighted – in part - by the decisions of RG Steel to seek Chapter 11 protection and ThyssenKrupp to sell its plants. May US car sales were up year-on-year, but below 14m units annualised for the first time this year.

Most north European mills were trying to hold HRC at €520-530/t ($647-659/t) ex-works base, but spot prices had fallen to €500/t, or even less. Most imports were being kept out by the weak euro, which in turn was helping exports of rebar. And at the same time, the strong dollar was hurting exports from Black Sea countries, although Russia was benefitting from a firmer domestic market.

 

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