The latest forecast on European markets that it would witness an upward trend in the first half of 2013 does not instil any confidence. GDP growth in Germany, the leading economy in Europe at 1% is much lower compared with what was believed to be only a few months ago. As a result, the total crude steel production of EU-27 in the first 10 months of the current year at 144 million tonne is around 5% lower than the previous year. A number of flat steel facilities are closed. The price level both for flats and longs is not rising due to cheaper imports and subdued domestic demand. North American producers have offered higher prices for December and January and may still obtain them but for the intensely cold winter. This coincides with a marginal hike in prices of CIS mills. It is also reported that Chinese domestic prices are on the rise mainly due to some fresh doses of stimulus investment in rail and road networks in the interiors, supply constraints after adoption of rigid anti-pollution steps for the smaller units, strict monitoring by the provincial governments of bad loans by the banks for polluting units. A steady price increase in iron ore in the last one month would enable Chinese low-grade iron ore producers to resume production and cut down imports. Chinese exports reaching a level of 45.8 million tonne in the first 10 months of 2012 are around 12% more than the previous year.
Another significant feature of Chinese trade practices has been its recourse to WTO measures of anti dumping and countervailing duty mechanism against imports of CRGO and Pipes from the US and EU and, thus, restrain the free import flows.
Current level of steel prices varies widely across the regions. HR coils are marketed at $625/t ex-works in China against TMT prices of $ 570/t although export offers are lower, while Turkey is offering HR at $ 570/t fob and TMT at $ 620/t fob. Scrap prices have gone up to $ 390/t fob that has led to hike in prices in Billets and TMT. The spread between HR and CR which was ruling at $90/t only 3 months earlier has now dropped to $70/t due to lower auto demand in EU and USA. Low international prices of HR has impacted import offer at $550/t cfr to India against the domestic price of $620/t (R34,000/t).
Steel price trend in the next month may also vary regionally. The onset of winter may affect fresh construction and thereby long products in both EU and US would not witness any increase. Flat product prices may not observe a further decline as many capacities are temporarily out of operation and inventories with the service centres need a fill up. However, for South Korea increase in prices of flat products may be difficult to achieve due to poor offtake from auto and shipbuilding and Japanese Coils (HR and CR) would compete in the international market for a marginal rise.
Steel price movement in Indian market is likely to stabilise at the current level and producers may even withdraw some discounts offered in October and November on the back of higher demand from auto sector and increased construction demand. Additional reform measures and a pro-industry approach to halt the declining trend in economic indicators would encourage the industry to cater to the requirements of the critical sectors by even enabling them to substitute imports.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal
