Articles in Category: Ferrous Metals

In the face of a slowing US economy, a mixed position for the European economies and a still strong Asian market, it is a particularly tough call this year to judge where prices will go. Our call is the US will teeter on recession. Europe though restricted by high ECB interest rates will still enjoy some (if reduced) growth providing the Euro/US Dollar exchange rate does not strangle exports. Asia in general and China in particular are still enjoying robust growth. China may well drop from the double digit growth of the last 5 years to high single digit figures but that is still a very significant driver for the world economy and particularly the world metal markets.

So here are the 2008 predictions:

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I saw yet another tidbit of news this week that will further erode the savings coming from China’s steel exports. This Interfax news article reports a 5% export tax increase (from 20-25%) for all steel billet and long products coming from China. Long product refers to rebar and wire. There are no changes to the export tax on flat products such as hot rolled coil or cold rolled coil. This likely does not come as a surprise to many American buyers of China steel products.

The cost of imports has been slowly increasing both with the VAT rebate changes as we reported several months ago in conjunction with   and an appreciating RMB. So where is it all going? Our call is nothing but up. In addition to the currency changes and VAT, there does not appear to be any slowdown in China demand for metals products. In fact, some metals face supply shortages. On the face of it, we don’t see what will stem the rising China price. Add on top of all of this are two key underlying trends in American politics today – curbing the trade deficit and protecting US jobs. One can see how the China price is not going to get any lower.

But what the politicians and mass media fail to talk about is that trade with China is not just about Chinese jobs vs. American jobs (or the steel pipe producer in the US vs. the one in China) but also American jobs vs. American jobs. There are two American jobs at stake in these transactions….the steel producers’ jobs (who happen to have a far more effective lobbying campaign going) and the jobs of those who buy steel products…all of the value add assemblers and parts suppliers within every industry in the US. And unfortunately, they do not have a very effective lobbying campaign. Who ever said a rising tide lifts all boats?

-Lisa Reisman

Steel Prices in 2008

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Ferrous Metals

It is not often that we would take issue with It’s a fine publication packed with useful insight for metal markets. However, I feel that a recent article predicting the rise of steel prices in 2008 is overstating the effects of the weak dollar and underestimating the likely downturn in the economy. True, the article is essentially reporting projections given by Bradford Research in New York, which sees reduced imports due to the weak dollar pushing the price of imported steel along with low service centre inventories combined. This enables domestic U.S. producers to increase prices in 2008 by a hefty 13 percent. Bradford proposes that increasing iron ore, coking coal, and scrap prices will put pressure on mills to increase prices next year. Somehow I don’t see it. The article cites service centre inventories as being a 2.6 month supply. Taken crudely, that is equivalent to 4.6 times annual turn. I would expect at least a five times annual stock turn, so stocks are not low. If the U.S. economy is not stalling yet, it will soon. Hit by falling house prices and rising oil and credit costs will lead to a downturn in consumer demand. Inevitably, it will mean less steel coil for auto manufacturing and less steel girders for construction.

It’s true to say that the producers are caught between a rock and a hard place in regards to raw material costs; the long-term nature of iron ore contracts and the continued strength of the Asian markets mean iron ore prices will remain high for some time. The weak U.S. dollar will also severely restrict the price dampening effect of imported steel. The U.S. mills have been very savvy over the past few years in adjusting production to meet demand and not flooding the market with excess supply. Despite all that, though, we still can’t see service centres or the major consumers taking on significant re-stocking in the face of the economic doubts in 2008. If service centres continue to live hand to mouth, demand is unlikely to be significantly different from the latter part of this year. I would be surprised to see much of this 13 percent price increase stick in 2008. No matter how much the producers would like price increases to reduce pressure on their margins, I just don’t see it happening.

— Stuart Burns

The Dubai Air Show ended recently, and already the papers are announcing the massive sales secured by Airbus and Boeing — not just for their new offerings, the A380 and 787 Dreamliner, but for the stable stock in trade of A320’s and 777’s. Both makers have bulging order books with more than 1000 aircraft each on order. In addition, producers of smaller commuter aircraft like Embraer and Bombardier are also booming.

We see so many opportunities for the aircraft industry, but how does this affect the supply market feeding these production lines? After several years of sustained growth both in the West and Asia, the metals markets are already tight, particularly for the supply of semi-finished metals like plate, larger diameter bars, and the famous fasteners that have so delayed the Dreamliner. Read more

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