Steel Pricing Trends: Part One

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This is a follow-on piece to our previous base metals quarterly pricing update post from last week. You can read that post here.

Next we will cover the ferrous markets to include stainless steel and steel. These will also be reported as separate blog posts.

The relentless rise of steel prices has been the subject of widespread reporting for the last two years. The end of long running iron ore contracts earlier this year at up to 97% over the previous levels has done nothing to ease the pressure for yet higher prices. Though the steel market is not inflated by the speculative element that has exacerbated base and precious metals markets, it has presented an opportunity for steel mills to maximize profits to unprecedented levels. The low dollar has restricted imports and boosted the export opportunities for domestic US mills leaving the US market short of material and many companies on allocation. In such a climate, the mills have pushed through price increases on a month by month basis with little or no real resistance. Both anecdotal evidence and an analysis of the mills quarterly results shows that even though the mills are paying more for raw materials the sales prices they are achieving has meant profit margins are at unprecedented levels.

Steel production is rising at 6.2% globally according to the International Iron & Steel Institute’s monthly report with the greatest increases in Asia. Asia’s production in July was up 7.1% year over year to 66.4 million tons, led by China whose output increased 7.5% to 44.9 million tons. There were also increases of 15% in Taiwan, 13% in Korea, 6% in India and 2% in Japan. So supply is rising at a time when demand is weakening in North America and Europe. At the same time, the Chinese government has tried to dissuade exports of more basic steel products partly to curb over investment in polluting steel industries and partly to encourage exports of higher value add products from which the steel is made. Driven also by the strengthening RMB/US$ exchange rate the affect has been falling domestic steel prices in China. For the last few weeks our MetalMiner IndX(SM), currently in beta testing, has been tracking lower prices across a range of steel products in the domestic Chinese market. Inflation is running at an uncomfortable 7.9% in China and the government is walking a fine line between maintaining growth and keeping a lid on price escalation. If they take the route of boosting domestic consumption by infrastructure investment as this Mineweb article explains some suggest it will support steel demand and hence prices. If they continue on the current path of gently managing a cooling of growth then demand and hence prices could stabilize at current levels or even come down a little further in Asia.

We’ll cover steel pricing in the North American market in a follow-up post.

–Stuart Burns and Lisa Reisman

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