Japan's JFE Says Asian Market Set for $200 per Ton Steel Price Increases in Q2

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Japan’s JFE was surprisingly bullish in comments made by Tsutomu Yajima, senior vice president of JFE Holdings’ core unit JFE Steel Corp, in a Reuters article. Yajima is quoted as saying the company is in talks with its clients in Asia to boost its hot coil prices by $200 per metric ton to the mid-to-upper $700 range in Q2, from around $550 in January-March. JFE also aims to raise the price of shipbuilding plates by $150 to $750, he said.

The World Steel Association anticipates a 57 million ton increase in steel demand in Asia in 2010, or 8%, although JFE is forecasting it will be much stronger. The firm expects the region to increase its steel-making capacity by only 50 million tons in 2010 as many old Chinese mills will be closed down, allowing steel makers to pass on rising costs in higher prices.

Asian iron ore prices have jumped since buyers have returned to the market after the Chinese New Year. And though inventories at China ports have risen slightly to 69.42m tons, the first trades have been at US$136/ton for 62% Australian and 63.5% Indian ores CIF main Chinese ports according to this article. Having said that, analysts do not think prices will hold at this level and are expecting a period of de-stocking to impact prices in coming months. Swaps contracts for the second quarter were pegged at $129-$131 and at $126-$129 for the third quarter according to another article.

Comparisons with January 2008 are interesting but hardly of any use in determining current trends simply because production was so low last year an increase now is inevitable. Details of a World Steel Association report in Reuters said global crude steel production jumped 25.5% year-over-year in January but more importantly increased 1.8% over December as steel makers continued bringing back idled capacity, banking on economic recovery. Production in January totaled 108.9 million tons versus 107 million tons in December, while crude steel output in China, the world’s largest steel producer and consumer, was up only 0.2% on a monthly basis.

Quite where JFE sees this surge in demand from is not clear. But they say demand will come from  automotive steel sheet and tin plates, likening the situation to early 2008 when strong demand and skyrocketing raw materials costs pushed hot coil prices to $1,000 per ton. We would be staggered if that happened this year given the world crude steel capacity utilization ratio. According to WSA, in January 2010 that ratio was still only 72.9% up from 71.9% in December 2009.

The position of European producers seems a more likely reflection of reality, although it may just reflect the slower rebound Europe is seeing compared to Asia. Swedish steel producer SSAB Chief Executive Olof Faxander said in a Reuters report that he expected the price of iron ore, coal and coke to rise during the period, and global steel demand to strengthen somewhat in the first quarter compared with Q4 ’09,” he added. “We see an end of inventory liquidation and a slight improvement in demand from end-consumers.” Hardly set the world alight comments but probably a fair prediction of a gradually rising demand.

–Stuart Burns

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