Commodities | Aug 28 2008
By Chris Shaw
In the past 12 months steel industry consultant MEPS estimates average transaction values for hot rolled coil have risen by as much as US$600 per tonne in North America, US$530 per tonne in the European Union and by more than US$350 per tonne in Asia. The increases were driven primarily by lower Asian imports and reduced output by some local producers.
Long product prices have also risen over the same period thanks to higher scrap prices and strong demand from the Middle East, which helped restrict local supplies.
In the group’s view, the price strength enjoyed over the past 12 months or so is likely to continue into September given higher raw material costs, but this may well prove to be the peak of the market as reduced consumption in slowing Western economies lowers the level of demand on mills.
As well, the likely low level of construction activity in coming months means buyers will be cautious rather than aggressive, particularly given tougher credit conditions at present. This should see selling levels decline into the end of the year. Downward pressure on prices is also expected from a drop in the reference rate used in the US to calculate scrap arbitrages, as the group notes this rate has not been tracking in line with fundamentals of late.
Add in seasonally weaker demand as the northern winter takes hold and MEPS sees prices falling further in the early months of 2009 as mills cut prices to fill order books. Although, the downside is somewhat limited, in its view, by the expectation of little in the way of Asian exports swamping markets in the West.
