Just as my colleague posted a piece last week on what the analysts and industry pundits see for the future of aluminum and copper, we thought we’d take a look at what folks see in their crystal balls for steel. And much of the steel story rests on current production levels and actual demand (vs. re-stocking).
To begin, we turn to statements made at a recent steel conference. From a global perspective, steel production has declined by 20% since last September, according to this article. But production has not declined in China and India. Let’s qualify that last point. Production has declined but not in line with demand. In other words, demand has fallen faster than production has declined. And though it has been reported that China will cap steel production to 460m tons this year, the numbers for Jan-May suggest China will miss the mark by some 12%. According to the World Steel Association, China produced on average approximately 43.317 tons/month from January ” May of this year. Given that average run rate, we might expect China to produce 519m tons this year based on their current pace.
According to the Guardian article, Chris Plummer, managing director of Metal Strategies, estimates China will produce 540m tons of steel this year. Though our numbers differ a bit we both draw the same conclusion ” China has missed its target and perhaps more important, has not cut production sufficiently to match demand.
Production aside, we see some upticks in prices globally. Our own MetalMiner IndX(SM) has shown prices for CRC have increased from RMB4300/ton on January 1 to $4500/ton on June 26. But prices for HRC dropped slightly from RMB3750/ton on January 2 to RMB3640/ton today. Others have reported 4% and 5% price increases for both HRC and CRC, respectively. Cru also reports of price increases and the same is true for both European and domestic markets. HRC and CRC have both seen increases in the 6-7% range recently in those same markets.
So are we in for a run-up of steel prices in general? The producers are raising prices as we have previously reported. But we think it all comes back to demand and here we still have some questions. If the mills bring on production too soon, and demand doesn’t meet supply, prices will fall. But all producers have an interest in boosting prices as quickly as possible since many inefficient mills are not running profitably. However, if prices start escalating quickly, and countries such as China and India have extra capacity, they will undercut US producers and we’ll see an uptick of imports.
Time will tell ¦.